Top tips to lock in rates on investment property loans

Fixed Rate Investment Loans: What They Are and When to Use Them

A fixed rate investment loan locks your interest rate for a set period, typically one to five years, so your repayments stay the same regardless of rate movements during that time.

Consider a buyer who's just secured a rental property using equity from their main home. They expect rental income to cover most of the loan repayments, but they're also carrying a variable rate loan on their primary residence. Locking in a portion of the investment loan on a fixed rate means they can forecast cash flow with certainty, even if their variable rate moves. That certainty matters when you're relying on passive income to service the debt and you don't want a rate rise to push the property into deeper negative territory.

Fixed rates generally sit slightly higher than variable rates at the time you lock them in, because lenders price in a margin for the certainty they're offering. But if rates climb during your fixed period, you're protected. If they fall, you're locked in and may face break costs if you try to exit early. That trade-off is the reason fixed rates suit investors who value predictability over flexibility, particularly those holding properties with tight cash flow or planning to offset income against other investments.

Interest-Only Repayments on Fixed Investment Loans

Most lenders offer interest-only repayments on fixed rate investment loans for up to five years.

Interest-only means you're not reducing the loan balance during the fixed term, which keeps repayments lower and frees up cash flow. That structure is common among property investors who want to maximise tax deductions and direct surplus income toward other investments or into paying down non-deductible debt, such as a home loan. Under current tax rules, interest on borrowings used to acquire or hold rental property remains fully deductible against assessable income, so keeping the investment loan balance high can increase your annual deduction.

Keep in mind that once the interest-only period ends, the loan typically reverts to principal and interest unless you apply to extend it. Lenders assess serviceability again at that point, and rental income alone may not be enough if vacancy rates have increased or if your other commitments have changed. If you're planning to refinance or sell before the interest-only period expires, a fixed interest-only structure can work well. If you're holding long term, you'll need to factor in the higher repayments that follow once principal starts being repaid. For investors using interest-only construction loans to build a second dwelling, the same logic applies: the structure buys you time during the build phase, but serviceability will be reassessed once the loan converts.

How Fixed Rate Break Costs Are Calculated

Break costs apply if you repay a fixed rate loan in full, refinance, or make a large extra repayment before the fixed term ends.

Lenders calculate break costs based on the difference between the rate you're paying and the rate they can now earn by reinvesting the money for the remaining fixed period. If rates have fallen since you locked in, the lender loses income by letting you out early, and they pass that loss to you as a break cost. If rates have risen, there's generally no break cost because the lender can reinvest at a higher rate.

The formula varies slightly between lenders, but the main inputs are the amount being repaid early, the remaining term, and the movement in wholesale funding costs since you fixed. Break costs can run into thousands of dollars, particularly if you're exiting a fixed loan early in the term and rates have dropped significantly. That's why a fixed rate loan works better when you're confident you won't need to sell, refinance, or restructure before the term ends. If you're likely to access equity, switch lenders for a lower rate, or sell within a year or two, a variable rate or a shorter fixed term gives you more flexibility.

Split Loan Structures for Investment Properties

A split loan divides your borrowing into two or more portions, each with its own rate type, typically a mix of fixed and variable.

In a scenario like this: you borrow to purchase a rental property and split the loan 50-50 between a three-year fixed rate and a variable rate. The fixed portion gives you repayment certainty on half the debt, while the variable portion lets you make extra repayments without penalty, redraw if needed, and take advantage of any rate cuts. If you decide to refinance or sell before the three years are up, you only face break costs on the fixed portion, and you've still got access to the redraw facility on the variable side.

Split structures are common among investors who want some rate protection but don't want to lock in the full amount. They're also useful if you're planning to use equity release from the investment property down the track, because you can structure the variable portion to allow for future top-ups or redraws without touching the fixed loan. Most lenders allow splits in any proportion, though some cap the number of splits or charge additional fees if you want more than two portions. When you're comparing lenders, check whether offset accounts are available on the variable portion of a split, because not all investment loan products include them.

What Happens When Your Fixed Rate Term Ends

When the fixed term expires, your loan automatically rolls onto the lender's standard variable rate unless you take action beforehand.

That standard variable rate is almost always higher than the discounted variable rates available to new borrowers, sometimes by 0.5 to 1.0 percentage points or more. Lenders rely on inertia: most borrowers don't refinance or renegotiate when the fixed term ends, so the lender earns a higher margin. If you're holding an investment property and your fixed rate is due to expire in the next few months, contact your lender or broker at least 60 days before the expiry date. You can either negotiate a new fixed rate, switch to a discounted variable rate with the same lender, or refinance to another lender offering a lower rate.

Refinancing at the end of a fixed term is common, particularly if your property has increased in value or if your rental income has improved, because you may now qualify for a lower rate or better loan features. If you've been making interest-only repayments and want to continue, you'll need to reapply, and the lender will reassess your income and expenses. Some lenders are more flexible than others when it comes to extending interest-only periods on investment loans, so it's worth comparing your options rather than accepting whatever your current lender offers. If you're planning to refinance to fund a granny flat or other construction on the investment property, the end of your fixed term is an ideal time to restructure the entire loan.

Serviceability and Debt-to-Income Limits on Investment Loans

Lenders assess your ability to service an investment loan at a rate that's at least 3.0 percentage points above the product rate, and they apply a debt-to-income limit of six times your gross income for the top 20 per cent of new investor lending.

That serviceability buffer means if you're applying for a fixed rate investment loan at 6.0 per cent, the lender tests whether you can afford repayments at 9.0 per cent. Rental income is typically included at 80 per cent of the assessed market rent to account for vacancy and maintenance costs, though some lenders shade it more heavily depending on location and property type. If you're borrowing more than six times your total household income, your application will fall into the high debt-to-income bracket, and only a limited number of loans in that bracket are approved each quarter. That doesn't mean you'll be declined outright, but it does mean the lender will scrutinise your income, expenses, and existing commitments more closely.

The DTI limit applies separately to investor lending and owner-occupier lending, so if you're already carrying a large home loan and you're now applying for an investment loan, both ratios are calculated independently. Non-bank lenders are not currently subject to the DTI cap, which gives them more flexibility in some cases, though they often charge slightly higher rates to reflect the additional risk they're taking on. If you're self-employed or receiving income from multiple properties, a broker can help structure the application to maximise your serviceability, particularly if some of your income is assessable at a lower percentage than standard salary.

Tax Deductibility and Negative Gearing Under Current Rules

Interest on a fixed rate investment loan is fully deductible against your assessable income for properties held before the 2027-28 income year.

For investors who purchased or exchanged contracts on rental properties before mid-May of last year, the current negative gearing rules remain in place indefinitely. That means if your rental property runs at a loss, you can offset that loss against salary, business income, or any other assessable income in the same year. If you're holding a property with an interest-only fixed rate loan, your annual interest expense will be higher than it would be under principal and interest repayments, which increases your deduction and reduces your taxable income.

From the 2027-28 income year, losses on established residential investment properties acquired after mid-May last year can only be offset against income from other residential properties, including capital gains when you sell. Losses can be carried forward but can't be used to reduce your salary or wage income. That change doesn't affect properties you already own or new builds, which continue to qualify for full negative gearing. If you're planning to purchase another investment property, it's worth understanding which properties still qualify for the existing rules and which are subject to the new restrictions, because the after-tax return on an investment loan can differ significantly depending on when and what you buy. Capital gains tax treatment is also changing from mid-2027, with indexation replacing the 50 per cent discount for gains accruing after that date, though that's a separate consideration from the loan structure itself.

When a Fixed Rate Makes Sense for Property Investors

A fixed rate investment loan suits investors who want repayment certainty, expect rates to rise, or need predictable cash flow to meet serviceability requirements.

If you're using investment equity to fund construction of a second dwelling or granny flat, locking in a fixed rate during the build phase can protect you from rate increases while rental income is not yet flowing. If you're holding multiple properties and your total debt is high relative to your income, fixing a portion of your borrowing reduces the risk that a rate rise will push your serviceability below the lender's threshold. And if you're approaching retirement or planning to scale back work in the next few years, a fixed rate gives you certainty over what your repayments will be during that transition.

Variable rates offer more flexibility and usually start lower, so they work better if you expect to make large extra repayments, access equity regularly, or sell within a short time frame. Most investors find that a split structure, with part fixed and part variable, gives them the balance they need without locking in the full amount. The right mix depends on your income stability, your cash flow, and how much rate movement you're willing to absorb. If you're uncertain, run the numbers under different rate scenarios and see how each structure affects your after-tax position and your ability to hold the property long term.

Call one of our team or book an appointment at a time that works for you. We'll walk through your income, your existing loans, and the property you're looking to finance, and we'll show you which lenders offer the most suitable fixed rate investment loan options for your situation.

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