Fixed, variable or refinance after an RBA rate rise: a break-even test

As at: 2026-09-01

The cash rate is 4.35% after three increases in 2026, but that number is not your mortgage quote. The Reserve Bank of Australia says lenders passed the increases through to mortgage rates, yet competition has also led some lenders to cut selected advertised rates. Your rate can reflect funding costs, product design, loan-to-value ratio, credit profile and a lender’s appetite for your business.

So the useful question is not “Will the RBA raise again?” It is “Which option recovers its costs before my likely exit date, and which repayment path can my household carry?”

Put four written offers on the same footing

Start with your current contract and repayment schedule. Then ask for written figures for four choices:

• keep the current loan unchanged;

• ask the current lender to reprice it;

• fix part or all of the balance; and

• refinance to another lender.

Use the same balance, repayment type and remaining term in every comparison. A refinance that restarts 20 years of debt over 30 years can lower the monthly repayment while increasing lifetime interest. That is not a like-for-like saving.

Cash rate, variable rates and fixed rates move on different clocks

A variable rate can change when the lending market changes, including when the cash rate changes. It does not follow the cash rate by a guaranteed one-for-one amount. Moneysmart notes that the rate offered can also reflect creditworthiness, customer value and competition.

A fixed rate locks the rate for a specified period. It can make budgeting easier, but you may miss a later rate fall, face limits on extra repayments or pay a break fee to leave early. A split loan assigns one portion to fixed and the rest to variable. It does not remove risk; it divides the risks between two contracts.

Build the break-even worksheet before choosing a product

The first screen is simple:

Simple cash-flow break-even months ≈ one-off switching costs ÷ expected monthly repayment reduction after ongoing fee differences

Total switching costs can include a fixed-rate break fee, discharge fee, application fee, internal switching fee and any lender’s mortgage insurance that applies. Keep ongoing feature costs separate from those one-off charges. If an offset account currently reduces the balance charged interest, compare the expected average offset balance—not merely whether the new product advertises an offset.

Use repayment schedules with the same opening balance, repayment type and remaining term. The quotient above estimates when lower cash payments recover the upfront cost; it is not necessarily the economic break-even date. It is useful only when the expected monthly reduction is positive and reasonably stable.

At the planned exit date, compare cumulative interest and fees and the loan balance still owing under each option. Principal repaid is debt reduction, not an expense. Model changing rates and offset balances over that same period, and do not count a lost offset benefit twice if it is already reflected in the interest calculation. A rough interest estimate can screen quotes, but the final comparison needs the repayment and balance schedules.

Use one comparison table

If lower repayments take 24 months to replenish the upfront switching cost but you may sell in 18 months, the cash-flow screen has not broken even. Check interest, fees and the remaining loan balance at month 18 before concluding that refinancing has no economic benefit. Keeping the loan longer gives a lower rate more time to reduce interest, but the comparison must still use the same term.

Here is a hypothetical comparison, not two lender offers. Both loans start at A$500,000 with 20 years remaining and principal-and-interest payments at each month end. Assume constant annual rates of 6.5% and 6.0%, converted to monthly rates by dividing by 12. There is no offset, no ongoing fee and no extra repayment. Refinancing costs A$3,000, paid from cash at the start rather than added to the new loan. The comparison ends just after the 24th payment.

The lower repayment frees about A$145.71 a month. Over 24 months, repayments fall by A$3,497.05, leaving A$497.05 after the switching cost. But the refinanced loan also owes A$1,466.04 less at the exit date. The combined advantage is therefore A$1,963.09: A$497.05 of cash plus A$1,466.04 less debt. Equivalently, A$4,963.09 less interest minus A$3,000 switching cost gives the same result. Do not add the lower debt again to the interest saving; that would count the principal effect twice.

The simple cash-flow quotient is about 20.6 months, meaning the upfront cost is recovered during the 21st monthly payment under these assumptions. It is not a calculation of the economic break-even date. The example ignores returns on cash retained and assumes any repayment saving remains available rather than being spent. Lender schedules may differ because of daily interest, payment dates, rounding, rate resets or fees added to the loan. Table amounts are rounded only for display; calculations use unrounded repayments.

Run three rate paths instead of one forecast

RBA market pricing is a conditional signal, not a promise. The August Statement described financial conditions as somewhat restrictive and market pricing as roughly a 50% chance of a further cash rate increase by year-end. That can change with inflation, labour demand, global energy prices and financial conditions. The worksheet should still work when the forecast changes.

Ask the current lender to reprice before refinancing

Moneysmart suggests telling the current lender that you are considering a cheaper offer. A repricing can capture part of the saving without discharge and application costs. Compare the repriced offer with external quotes, including fees and features.

If you refinance, verify the settlement date, the old loan payout amount, the new direct-debit date and every offset link. The published mortgage offset audit explains how to confirm that an offset is attached to the intended eligible loan or split after settlement.

Offset value belongs in the calculation

An offset account reduces the loan balance on which interest is calculated when it is correctly linked to an eligible loan. Its economic value depends on the balance you actually keep there, the interest rate and any extra package or account fees.

For example, an average A$30,000 offset against a 6% eligible variable balance has a rough first-year interest effect near A$1,800 before timing differences and fees. That is a screening estimate, not a guaranteed saving. If refinancing removes or restricts the offset, include the resulting extra interest over the comparison period. Add any extra annual fees over the same period, separately from one-off switching charges.

Approval buffers and household buffers are different

APRA’s mortgage serviceability buffer remains 3 percentage points. This is a lender assessment setting, not a promise that repayments will feel comfortable. A lender can approve a loan while the household has too little accessible cash for an income interruption, repair or rate reset.

Stress-test the budget at the quoted rate, at a higher rate and with a temporary income reduction. The three buffers for first-home buyers separate equity, accessible cash and retirement savings. The same separation remains useful after purchase.

Fixed, variable and split solve different problems

Fixed can suit a household that values a known repayment during the fixed period and accepts the cost of lost flexibility. Variable can suit a household that can absorb changes and values extra repayments, redraw or easier switching. Split can cap part of the repayment risk while preserving flexibility on the rest.

None is automatically best after an RBA increase. The right comparison is the one that uses your contract, written quotes, actual feature use and planned holding period.

Conditions that should reopen the decision

Recalculate when any of these changes:

• the current lender changes your rate or offers a reprice;

• a written external quote changes its comparison rate, fees or features;

• a fixed-rate break fee falls materially;

• the planned sale or refinance date moves;

• the expected offset balance changes;

• household income or emergency cash changes; or

• the fixed period ends and the revert rate becomes known.

Conclusion

After an RBA rate rise, a mortgage decision should survive more than one forecast. Put keep, reprice, fix, split and refinance choices on the same balance and remaining term. Separate one-off break, discharge and application costs from ongoing fees and feature effects. Use lower repayments as a cash-flow screen, then compare cumulative interest, fees and the remaining debt at the planned exit date under further-increase, hold and later-reduction paths. A lower advertised rate is useful only if the same-date comparison shows a net benefit and the household retains enough cash-flow room.

This article provides general educational information, not personal financial, credit, legal or tax advice. The author or operator may hold Australian property or listed bank investments discussed in this article. It was not commissioned or sponsored by a lender, mortgage broker, bank or product provider and contains no affiliate or referral links. Automatically selected display advertising, if enabled, does not determine the editorial view. Obtain written lender quotes and consider licensed or otherwise qualified professional advice for your circumstances.

Sources

• RBA Statement on Monetary Policy: financial conditions

• RBA lenders’ interest rates

• Moneysmart: choosing a home loan

• Moneysmart: switching home loans

• APRA macroprudential settings