With all the current discussions around inflation and interest rate rises, it comes to no surprise, that the question often raised to experts is "Should I fix my loan or stay on a variable interest rate?"
It's a fair question, particularly after the events we’ve seen since the start of 2026. This year has reminded mortgage holders that interest rates won’t always be predictable. Following a series of cash rate increases earlier this year, the Reserve Bank of Australia paused in June while making it clear that inflation remains its primary concern and that further increases remain a possibility, if required.
For investors looking closely at the markets, this has created some uncertainty. Nobody enjoys uncertainty, particularly when it affects one of life's largest financial commitments. Yet, over many years of investing, savvy investors realise the decision between a fixed or variable loan shouldn't be based solely on trying to predict what the Reserve Bank will do next. If you’re considering your next financial move, you should base loan structuring in line with your investment strategy, your cash flow, your risk tolerance, and your long-term financial goals.
It might shock some borrowers, but the best loan isn't necessarily the one with the lowest interest rate today. The best loan for you will be the one that best supports your investment journey over many years, and this is where strategy needs to be at the forefront of your investment decisions.
Interest Rates Are Only Part of the Story
Property investors often spend an enormous amount of energy trying to forecast interest rates when the reality is that very few economists consistently predict interest rate movements accurately. If professional economists, financial markets, and major banks regularly revise their forecasts, individual investors should be cautious about making significant financial decisions based solely on interest rate predictions.
Right now, most of the major bank economists expect the Reserve Bank to keep rates relatively steady for the remainder of 2026, although some still believe another increase is possible if inflation proves more persistent than expected. Looking further ahead, many expect conditions to become more supportive during 2027 if inflation continues to moderate.
The Case for a Fixed Interest Rate
A fixed-rate loan offers something many investors value highly. This is certainty.
Your repayments will remain unchanged throughout the fixed period, whether interest rates rise or fall and for many households, that certainty provides significant peace of mind especially during the current period of unstable inflation. Being able to better manage your budget, and a predictable cashflow, there will not be anxiety whenever the RBA announces its latest cash rate decision.
For investors with many properties, this can be particularly valuable becomes sometimes even a small increase across several loans can have a noticeable impact on monthly cash flow. Fixed rates may also make sense for investors with tight borrowing capacity or those who simply prefer financial certainty over flexibility.
The Downsides of Fixing
However, certainty comes at a price and the biggest cost is the lack of flexibility.
If you have a loan with a fixed interest rate, then if rates begin falling you will be locked into paying higher repayments that won't reduce until your fixed period expires. There is also usually limits around making additional loan repayments if you have fixed your loan, and many lenders restrict the ability to utilise offset accounts and redraw facilities.
Breaking a fixed-rate loan early can also result in significant break costs depending on market conditions. Investors should therefore view a fixed loan as a commitment, not simply an interest rate.
Why Variable Loans Remain Popular
Variable loans remain the most popular option for many experienced investors because they provide flexibility, and typically allow unlimited additional repayments. They generally provide full offset accounts as well as redraw facilities are often available. Refinancing with a variable loan is usually much simpler.
If the Reserve Bank eventually reduces interest rates, borrowers on variable loans generally benefit relatively quickly as lenders adjust their mortgage pricing. For active property investors, this flexibility can become extremely valuable. Offset accounts alone can save many thousands of dollars in interest over the life of a loan while simultaneously preserving tax flexibility.
Variable Rates Have Their Own Risks
Alongside the benefit of flexibility, comes the downside of uncertainty. Monthly repayments can increase which can make cash flow harder to predict and manage. Budgeting becomes more difficult and requires a larger financial buffer.
What are Split Loans?
One strategy that has become increasingly popular is the split loan. Rather than choosing between fixed and variable, investors divide their borrowing into separate portions. For example, they may fix 50 per cent of the loan while leaving the remaining balance variable. This approach combines some repayment certainty with ongoing flexibility. The amount of fixed rate doesn’t have to be 50 per cent, you can choose your percentage.
The benefit of splitting a loan between fixed and variable interest rates, is that if interest rates rise further, only part of the loan is exposed. If rates eventually fall, the variable portion benefits immediately. Equally important, investors still retain access to features such as offset accounts on the variable component.
Common Mistakes:
The biggest mistake isn't choosing the wrong loan type. It's choosing a loan based purely on interest rate. Many investors will spend weeks comparing loan products while giving very little thought to selecting the right property. Ironically, purchasing an average investment property instead of an exceptional one can cost hundreds of thousands of dollars in forgone capital growth over the long term but, loan structure certainly matters.
Cash flow matters. Interest rates matter. But none of these factors outweigh buying the right asset. A great property held over twenty years will usually have a far greater influence on your financial outcome than whether your loan was fixed or variable for two or three years.
Predicting short-term interest rate movements is exceptionally difficult. Whilst some believe inflation may require one further tightening cycle, others expect the Reserve Bank has already done enough and that the next meaningful moves are more likely to occur during 2027 if inflation returns sustainably to target.
Mortgage brokers are increasingly encouraging borrowers to review their overall loan strategy rather than simply chasing the cheapest advertised rate.
That includes considering:
- Cash flow requirements.
- Future investment plans.
- Borrowing capacity.
- Offset account benefits.
- Loan flexibility.
- Portfolio growth objectives.
These factors often have a greater impact on long-term wealth creation than trying to perfectly time the interest rate cycle.
Ultimately, the right answer isn't determined by today's interest rate. It's determined by your long-term investment strategy. Because successful property investing has never been about predicting every twist and turn in the market, it is about building a resilient portfolio, managing risk sensibly and making decisions that continue serving you long term.
