Simple hacks to lock in fixed rates on investment loans

Fixed Rate Investment Loans: What They Lock In and What They Don't

A fixed rate investment loan holds the interest rate steady for an agreed period, typically one to five years. Your repayments remain unchanged during that period regardless of what happens to the Reserve Bank cash rate or lender variable rates.

The fixed period applies only to the interest rate. Other loan features, such as interest-only terms, loan-to-value ratios, and serviceability requirements, are assessed at application and do not change simply because you fix the rate. Consider a property investor in Bentleigh East who fixes a rate at 5.8 per cent for three years on an interest-only investment loan. The interest rate will not move for three years, but the interest-only period may revert to principal and interest before the fixed term ends if the initial interest-only approval was for two years. The fixed rate does not extend the interest-only term.

Fixed rates are typically higher than variable rates at the time of application. The difference reflects the lender's funding costs and expectations about future rate movements. If variable rates rise during the fixed period, the fixed rate may become more attractive. If variable rates fall, the fixed rate may cost more than a variable loan would have cost over the same period.

How Interest-Only Terms Work With Fixed Rate Investor Loans

Most lenders approve interest-only terms separately from the fixed rate period. An interest-only term can run for one to five years depending on the lender, loan-to-value ratio, and your financial profile. If you fix the rate for five years but the interest-only term is approved for three years, repayments will increase at the end of year three when principal repayments begin, even though the rate remains fixed.

Interest-only repayments suit investors who want to maximise tax deductions and preserve cash flow, particularly during the early years of ownership when rental income may not yet cover all holding costs. From the 2027-28 income year, losses on established residential investment properties acquired after 12 May 2026 can only be offset against other residential property income under the current negative gearing changes. Properties acquired before that date, or eligible new builds acquired after that date, remain fully deductible against all income. The choice between interest-only and principal-and-interest repayments should reflect your tax position and the property's acquisition date.

Lenders assess serviceability on all investment loans using a buffer of at least 3.0 percentage points above the loan rate. If you apply for a fixed rate of 5.8 per cent on an interest-only basis, the lender tests your ability to service the loan at 8.8 per cent on a principal-and-interest basis. The test applies even if you intend to remain on interest-only repayments for the full term.

Break Costs: What Happens If You Exit a Fixed Rate Early

Break costs apply when you repay, refinance, or restructure a fixed rate loan before the fixed period ends. The cost reflects the difference between the rate you locked in and the rate the lender can now earn by re-lending the funds for the remaining fixed term.

If you fixed at 5.8 per cent for five years and variable rates have since fallen to 5.2 per cent, the lender will charge a break cost to recover the lost interest. If rates have risen above your fixed rate, the break cost may be zero or close to zero. Break costs are calculated using a present value formula that accounts for the outstanding loan balance, the remaining fixed term, and the lender's current cost of funds. Most lenders provide a break cost estimate on request, but the final figure is calculated on the day you settle the discharge or refinance.

Break costs are not tax-deductible in the year they are incurred. They are treated as a cost of refinancing and may be deductible over the remaining original term of the loan or over five years, whichever is shorter, depending on your circumstances. Seek advice from a tax specialist before assuming deductibility.

Split Loans: Combining Fixed and Variable Rates on One Property

A split loan divides the total loan amount between a fixed rate portion and a variable rate portion. Each portion operates as a separate loan facility with its own rate, repayment structure, and terms. You might fix 60 per cent of the loan at 5.8 per cent for three years and leave 40 per cent on a variable rate at 6.1 per cent.

The variable portion allows you to make extra repayments or redraw funds without incurring break costs. The fixed portion provides certainty over a set period. The split can be structured in any proportion, provided each portion meets the lender's minimum loan size, typically $10,000 or $50,000 depending on the lender.

Some lenders allow offset accounts against the variable portion of a split loan but not against the fixed portion. If you hold surplus cash in an offset account, the variable portion accrues less interest while the fixed portion continues to accrue interest at the fixed rate on the full balance. Offset accounts are less common on investment loans than on owner-occupied loans, and where they are available, not all lenders provide a full 100 per cent offset.

Fixing Rates in Bentleigh East: Local Market Considerations

Bentleigh East sits within the Glen Eira local government area and is serviced by several railway stations including Bentleigh East and McKinnon on the Frankston line. Proximity to Caulfield Racecourse, Monash University's Caulfield campus, and the shopping precincts along Centre Road supports rental demand from young professionals and small families. The area has a mix of post-war brick units, renovated period homes, and newer townhouse developments.

Investors in Bentleigh East typically target two-bedroom units or three-bedroom houses within walking distance of the railway stations. Rental yields in the area are moderate, and capital growth has historically been steady rather than rapid. A fixed rate strategy can suit investors who are holding for long-term growth and want to protect cash flow during the early years of ownership, particularly if the property is negatively geared and rental income does not yet cover the loan repayments.

Lenders assess investment loan serviceability based on rental income, which is typically discounted by 20 per cent to account for vacancy and maintenance. If a property in Bentleigh East generates $550 per week in rent, the lender will include $440 per week as assessable income. The discount applies regardless of whether you choose a fixed or variable rate.

Refinancing Fixed Rate Investment Loans: Timing and Costs

Refinancing an investment loan while the fixed rate is still in place will trigger break costs unless you refinance at the exact moment the fixed term expires. Most lenders allow you to apply for refinancing or a rate switch within 90 days of the fixed rate expiry without penalty, but you must time the application so that settlement occurs on or after the expiry date.

If you refinance before the fixed term ends, the break cost is added to the payout figure and must be paid at settlement. Some borrowers choose to absorb the break cost if the new loan offers a significantly lower rate or more suitable features, but the calculation should account for the time value of the savings over the remaining life of the loan. Use the refinancing page to review the process and timing considerations before committing to a refinance during a fixed term.

Debt-to-income lending limits apply to new investor loans from 1 February 2026. Each lender may lend up to 20 per cent of new investor loans to borrowers with a total debt-to-income ratio of six times or greater. If your total borrowings, including the investment loan and any owner-occupied debt, exceed six times your gross annual income, you may fall within the 20 per cent cap and face additional scrutiny or a declined application depending on the lender's current quarterly position.

When a Fixed Rate Investment Loan Does Not Suit Your Strategy

Fixed rate loans do not suit every property investment strategy. If you plan to make regular extra repayments or repay the loan early from the sale of another asset, a fixed rate will limit your ability to do so without incurring break costs. If you expect to renovate or subdivide the property and require additional borrowings during the fixed term, most lenders will not allow you to increase the loan amount on the fixed portion, and you will need to apply for a separate facility.

Fixed rates also do not suit investors who may need to sell the property within the fixed term. If you are purchasing a property with the intention of holding it for 12 to 18 months and then selling, a variable rate provides more flexibility. The same applies if you are testing a new market or property type and want the option to exit without penalty if the investment does not perform as expected.

Investors who hold multiple properties may prefer to fix the rate on one property and leave others on variable rates, rather than fixing all properties simultaneously. This approach provides a hedge against rate movements while retaining flexibility across the portfolio. If one property is sold or refinanced, the remaining properties are not all subject to break costs at the same time.

Call one of our team or book an appointment at a time that works for you to discuss whether a fixed rate investment loan suits your property strategy and tax position, and to compare loan options from lenders across Australia.

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