Decoding the Variable vs Fixed Rate Debate
- Bob Malpass
- Mar 12
- 3 min read
So what’s best?
Historically, outside the COVID era extremes, the answer is nuanced: meaning it’s not black and white!
Variable rate borrowers have often done better on average over the long term, HOWEVER only if they stay disciplined and rates didn’t spike unexpectedly.
This isn’t a black and white tale of one rate type dominating the other. It’s more like a chess match where strategy, timing and a dash of economic luck decide the
winner.
According to RBA cash rate histories and APRA borrower stats, we can draw from Australian home loan data back to the 1990s (excluding that ultra low rate, Quantitative Easing (QE) driven COVID distortion) that standard variable rates have tended to sit lower on average over multi decade horizons once you smooth out the peaks and troughs.
Yet there are standout periods where fixing looked brilliant, like locking in before the RBA’s 2022-2023 surge, while other times fixed rate holders paid more than variable stayers, flipping the old ‘variable is always cheaper’ myth.
Since around 2010, many 3 year fixed rate products have actually undercut variable rates, challenging long held assumptions and showing how lender competition can shift the sands.
In essence, long term averages nudge towards variable, however the ‘win’ hinges on your timing and habits. Pure luck won’t cut it.
Variable loans can triumph in two key scenarios:
When the RBA cuts or holds steady, handing variable borrowers automatic repayment relief that fixed folks miss out on, or
When you wield flexibility like a pro, channeling extras into offset accounts or redraws to slash total interest over the loan’s life.
This edge shines in downtrends, like the post GFC lows where disciplined Aussies overpaid by 10-20% annually, according to NAB surveys on repayment
behaviour.
But this strategy crumbles if you panic refinance on every wiggle or get walloped by a tightening cycle (like the 4.35% cash rate peak that stung variables hard while fixed holders slept easy).
Fixed rates, meanwhile, have historically ‘won’ by protecting you before big RBA hikes, keeping your repayments steady as variables ballooned in 2022-2023. They’re gold for tight cash flows or life curveballs like kids, renos or job shifts, offering certainty even if averages cost a tad longer term.
Let’s take a look at July 2007
Fixing at about 7.7% for three years meant by 2010, when variables hovered at 7.5%, the gap was negligible - proving fixed can neutralise spikes without much penalty.
Ultimately, ‘better’ boils down to you:
math savvy
volatility tolerant types who overpay religiously, thrive
on variable over decades
while risk averse budgeteers opt for fixing (or splitting the loan) for peace of mind, accepting a slight average premium.
What most punters miss
and here’s the pro tip…
is that Aussie rates have trended downwards overall since the 1990s (where the RBA averaged 5-6% cuts per decade pre-COVID), favouring variables for those with a 3 month expense buffer and hawk like RBA monitoring.
Only about 30% of Aussies stick to extras consistently, leaving the rest exposed if inflation whispers 2026 hikes.
Remember, as we head into 2026, those higher fixed rate offers are a warning light for borrowers to review their strategy, not ignore it.
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If you'd like help with assessing your personal and financial situation, as well as comparing the loans in the market to see if you're truly getting the right deal for you, then call Bob Malpass now on 0431 862 136, email bob@westhomeloans.com.au
