Top tips to lock in fixed rates on investment loans

Investment property finance has shifted in the past two years, and the rules around fixed rates have changed with it.

If you're buying an investment property or refinancing an existing rental, understanding which fixed rate features suit your circumstances will help you manage repayments without locking yourself into the wrong product.

Should you fix part or all of your investment loan?

You can fix the full loan amount, a portion of it, or keep everything on a variable rate. A split structure lets you lock in certainty on part of the debt while keeping access to features like offset accounts and unlimited extra repayments on the variable portion.

Consider a buyer who purchases a rental property with a loan amount of $600,000. They fix $400,000 at a rate that won't move for three years and leave $200,000 on a variable rate. The fixed portion delivers predictable repayments, while the variable side allows them to park rental income in an offset account and reduce interest on that portion of the debt. If rates fall during the fixed term, the variable portion benefits immediately.

This approach also helps if you plan to release equity or refinance before the fixed term ends. Break costs on a smaller fixed portion are lower than on the full balance, and you retain flexibility on the variable side without penalty.

Fixed rate break costs and how they're calculated

Break costs apply when you repay a fixed rate loan early, whether through refinancing, selling the property, or making lump sum payments beyond any annual allowance.

The lender calculates the cost based on the difference between your fixed rate and the rate they can now earn by lending that money elsewhere for the remaining term. If market rates have fallen since you fixed, the break cost can be substantial. If rates have risen, the break cost may be zero or negligible.

In a scenario where an investor fixed $500,000 at 5.2 per cent for five years and decides to sell the property two years into the term, the lender will compare the remaining wholesale funding cost for three years against the original rate. If the current equivalent rate is 4.5 per cent, the investor wears the cost of that gap across the remaining term. The calculation takes into account the outstanding balance, the time left on the fixed period, and the movement in wholesale rates since the loan was locked in.

Some lenders cap break costs or structure them differently depending on the loan purpose and security type, but they remain a real cost that can erode sale proceeds or refinance savings if not factored in early.

Interest only repayments on a fixed investment loan

Most investors choose interest only repayments to manage cashflow and maximise tax deductions. You can fix an investment loan on an interest only basis for a set term, typically up to five years, depending on the lender and your loan to value ratio.

Interest only periods on fixed loans do not automatically renew. When the interest only term ends, the loan typically reverts to principal and interest repayments at whatever rate applies at that time, either the remaining fixed rate or the standard variable rate if the fixed period has also expired. You need to reapply if you want to extend the interest only arrangement, and approval depends on your circumstances at that point, not when you first took out the loan.

If you fix for three years on an interest only basis and your interest only approval also runs for three years, both features expire simultaneously. The loan will revert to principal and interest at the revert rate unless you refinance or negotiate an extension in advance. Repayments can jump significantly, so planning the transition is part of your broader investment loan structure.

Partial prepayment allowances during a fixed term

Most lenders allow you to make extra repayments up to a certain limit each year without triggering break costs, usually between $10,000 and $30,000 per annum depending on the product.

Those extra payments reduce the loan balance and the total interest paid over time, but they do not sit in a redraw facility or offset account on a fixed loan. Once paid, the funds are not accessible unless you formally redraw them, which may not be permitted or may involve fees and approval processes.

If you expect irregular income from bonuses, tax refunds or other sources and want to retain access to those funds, a split loan structure with a variable portion and offset account will usually serve you better than relying on prepayment allowances within a fixed term. The allowance is useful for deliberate debt reduction, not for managing liquidity.

Portability and whether you can transfer a fixed loan to a new property

Portability allows you to transfer your existing fixed rate loan to a different security without breaking the loan or paying exit costs. Not all lenders offer this feature, and those that do typically apply conditions around timing, valuation, and loan to value ratio on the new property.

If you sell one investment property and buy another within a short window, usually 30 to 90 days, you may be able to port the fixed loan to the new purchase. The loan amount must remain the same or lower. If you need to borrow more, the additional funds will be written as a new loan at current rates, not at the fixed rate you're transferring.

Portability can be valuable if you're upgrading within your portfolio or relocating an investment interstate, but it requires coordination between settlement dates and lender approval at each stage. It's not automatic, and not all property types or locations will meet the lender's security criteria even if your original loan did.

Offset accounts and fixed rate investment loans

Offset accounts are rarely available on the fixed portion of an investment property loan. If you want to use rental income or other funds to reduce the interest charged on your loan, you'll need to keep that portion on a variable rate or set up a split structure.

An offset account linked to the variable portion of your loan reduces the interest charged on that balance by the amount sitting in the account. The funds remain accessible, unlike extra repayments made directly onto a fixed loan, and you don't pay tax on notional interest because the account typically earns zero interest itself.

For investors managing multiple properties or those with fluctuating rental income, an offset linked to the variable split gives you control over cashflow without sacrificing access to capital when you need it for maintenance, vacancies, or further investment.

Fixed loan terms and your property investment strategy

Fixed terms commonly range from one to five years. Shorter terms offer lower rates but require you to refinance or revert sooner. Longer terms deliver extended certainty but typically carry higher rates and longer exposure to break costs if your circumstances change.

Your choice should reflect how long you intend to hold the property, your outlook on rate movements, and whether you're planning portfolio growth that might require equity release or refinancing within the fixed period. Locking in a five year term makes sense if you want stability and have no intention of selling or restructuring, but it can create obstacles if your strategy shifts or you identify a new purchase opportunity.

If you're building a portfolio and expect to leverage equity within two to three years, a shorter fixed term or a split loan with a smaller fixed portion reduces the friction and cost of accessing that equity when the time comes. The strategy drives the structure, not the other way around.

Rate discounts and how they apply to fixed investment loans

Lenders apply different discount structures to fixed and variable rates, and the discount on your variable rate does not automatically carry over if you fix part or all of your loan. Fixed rates are generally priced closer to the lender's cost of funds and offer less room for negotiation than variable products.

When comparing fixed rate investment loan products, look at the actual fixed rate being offered, not just the comparison rate or the discount off a published fixed rate. The discount may be smaller than what you receive on a variable loan, but the absolute rate and how it compares across lenders matters more.

Some lenders offer a better fixed rate if you're borrowing a larger loan amount, have a lower loan to value ratio, or are bringing multiple securities or products to the one institution. If you're refinancing or purchasing with a significant deposit, it's worth structuring the application to access any available pricing tiers.

Refinancing a fixed rate investment loan before the term ends

You can refinance during a fixed term, but break costs will apply unless market rates have moved in your favour. The decision to refinance comes down to whether the interest saving on the new loan, after accounting for break costs and any establishment or discharge fees, leaves you financially ahead.

Lenders will provide a break cost estimate if you request a payout figure. That estimate is based on rates at the time of the quote and will change daily as wholesale funding costs move. If you're considering a refinance, get the payout figure and the new loan offer at the same time so you can model the net outcome accurately.

If the remaining fixed term is short, it's often more practical to wait until the fixed period expires and refinance without penalty. If the term has several years left and rates have fallen significantly, the saving may justify wearing the break cost, particularly if you're also restructuring to access equity or move to interest only repayments. Each situation is different, and the numbers need to be worked through properly before committing.

Call one of our team or book an appointment at a time that works for you. We'll look at your current loan structure, your investment goals, and the loan options that give you the features and flexibility you actually need.

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