A fixed rate on an investment loan gives you certainty over interest costs for a set period, making it easier to forecast cash flow and plan your next property purchase.
Variable rates respond to changes in the official cash rate and can shift multiple times in a year. Fixed rates lock in a specific interest rate for one to five years, depending on the product. Investors who fix part or all of their loan know exactly what their repayments will be during the fixed period, which helps with budgeting when rental income fluctuates or when planning to use equity for another purchase.
Why Investors Choose Fixed Rates on Property Loans
Fixed rates protect your borrowing costs from unexpected rate rises. When the Reserve Bank increases the cash rate, variable loan rates often follow, although lenders determine their own pricing. A fixed rate investment loan holds your interest rate steady regardless of market movements during the agreed fixed period, which can improve cash flow predictability and reduce the impact of rate volatility on your overall portfolio.
Consider an investor with a property generating $600 per week in rental income and a loan balance of $550,000. A 0.25 percentage-point increase in the interest rate adds approximately $115 per month to the interest cost initially. The actual increase in principal-and-interest repayments will depend on the loan's interest rate and remaining term. Over 12 months, higher borrowing costs can turn a positively geared property into a negatively geared one if rental income does not keep pace. Fixing all or part of the loan removes that interest-rate uncertainty for the duration of the fixed term.
How Fixed Rate Periods Work Across Different Lenders
Most lenders offer fixed rate terms from one to five years, with three-year terms commonly chosen by investors. The fixed rate you receive depends on the lender's pricing at the time, your loan-to-value ratio, and whether you are taking an interest-only or principal-and-interest loan structure.
You can generally choose to fix the entire loan amount or divide it into fixed and variable portions. If you want flexibility to make extra repayments or access an offset account, you may choose to fix only part of the loan and leave the remainder on a variable rate. This is known as a split loan and is common among property investors who want rate certainty on one portion while retaining flexibility on the other.
It's also important to understand when the fixed interest rate actually becomes locked in. With some lenders, the advertised fixed rate can change between your application and loan settlement. A rate lock facility may allow you to secure a particular fixed rate before settlement, often for a specified period and potentially for an additional fee. Availability, costs and conditions vary between lenders.
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Interest-Only Fixed Rates and How They Affect Cash Flow
Interest-only loans allow you to pay only the interest each month without reducing the principal. This lowers your minimum monthly repayment and can improve cash flow, particularly during the early years of ownership when other costs such as maintenance or vacancy periods may arise.
Many investment loans offer the option to fix the interest rate while making interest-only repayments. However, the fixed-rate period and interest-only period are separate arrangements and do not necessarily expire at the same time. When the interest-only period ends, repayments will generally increase as the loan converts to principal and interest over the remaining loan term, regardless of whether the interest rate is still fixed or variable.
The combination of interest-only and fixed-rate features can suit investors seeking predictable interest costs and lower required repayments during an agreed period. However, the structure should account for the higher repayments once the interest-only period ends and any restrictions on additional repayments or offset facilities.
What Happens When Your Fixed Rate Period Ends
When a fixed-rate period expires, the loan will generally move to the lender's applicable variable interest rate unless you arrange another fixed-rate period or change products. The rate applied may differ from the discounted rates being offered to new borrowers, so it's worth reviewing your options before the fixed term expires.
Depending on the lender, you may be able to arrange a new fixed-rate period, switch to a variable product or negotiate more competitive pricing ahead of the expiry date. Some lenders contact you directly to discuss options, while others require you to initiate the conversation.
If you plan to refinance or sell the property near the end of the fixed term, coordinating the timing with the expiry date can help avoid unnecessary break costs and provide greater flexibility. For investors approaching the end of their fixed term, our fixed rate expiry page provides further information on timing and available options.
Break Costs and Why They Matter for Property Investors
If you repay a fixed rate loan in full before the end of the fixed period, break costs may apply. These are sometimes referred to as economic costs or early repayment adjustments and are designed to compensate the lender for certain costs associated with ending the fixed-rate arrangement early.
Break costs are calculated using the lender's methodology, which generally considers the remaining fixed term, the amount being repaid and movements in relevant wholesale interest rates. If wholesale rates have fallen since you fixed the loan, the break cost can be substantial. If rates have risen, the break cost may be zero or minimal. The exact calculation varies by lender, and most can provide an estimate upon request.
Consider an investor who fixed $400,000 at 5.5% for five years and decides to sell the property after two years. If relevant wholesale interest rates have fallen since the loan was fixed, the break cost could be substantial, depending on the remaining three-year term and the lender's calculation. If the investor had instead used a split loan, the break cost would generally apply only to the fixed portion being repaid, potentially reducing the overall cost of exiting the loan.
Split Loans and How to Structure Them for Flexibility
A split loan divides your total borrowing into two or more portions, each with its own interest rate and features. A common split for investment property is 50% fixed and 50% variable, though the proportions can be adjusted to suit your preferences.
The variable portion may be linked to an offset account, allowing you to park surplus cash and reduce the interest charged on that part of the loan. The fixed portion provides interest-rate certainty. If you need to exit the loan early, you can generally repay the variable portion without a fixed-rate break cost, although other fees may apply. Any break cost on the fixed portion will depend on the lender's terms and the circumstances of the repayment.
This structure can be useful for investors who may want to access equity or sell within the next few years but still want some protection from rate rises in the short term.
How Fixed Rates Interact with Borrowing Capacity and Serviceability
When assessing new residential mortgage lending, APRA-regulated banks currently apply a serviceability buffer of at least 3 percentage points above the loan interest rate. Lenders may also apply their own assessment rates and other credit policy requirements. Non-bank lenders can use different serviceability assessment methodologies.
Choosing a fixed rate does not automatically increase your borrowing capacity. While fixing an interest rate can make your actual repayments more predictable, lenders will still assess your existing debts, income, expenses and proposed lending under their current serviceability policies.
For investors holding multiple properties, fixed rates can make it easier to forecast ongoing repayments and manage cash flow. However, having fixed-rate loans does not necessarily mean a lender will assess your borrowing capacity more favourably when purchasing another property.
If you're planning to expand your portfolio, our borrowing capacity resource explains some of the key factors lenders consider when assessing additional borrowing.
Fixed Rates and Portfolio Growth Strategy
Investors building a portfolio often use fixed rates strategically to protect cash flow during periods of acquisition. Locking in rates on existing properties can free up mental bandwidth and reduce the risk that a sudden rate rise forces you to pause your investment plans.
If you're planning to buy a second property within the next 12 to 24 months, fixing your current investment loan may help stabilise repayments and make it easier to budget for the next purchase. However, the equity available and your future borrowing capacity will still depend on property valuations, your financial position and lender policy. Some investors fix rates for shorter terms, such as one or two years, to align with their intended purchase timeline, then revert to variable rates or refix once the new property is settled.
When to Consider Refinancing a Fixed Rate Investment Loan
If your fixed rate is higher than current market rates and you are outside the fixed period, refinancing to a new lender or product can reduce your interest costs. If you are still within the fixed period, you need to weigh the benefit of a lower rate against any break costs associated with exiting early.
Some investors refinance during the fixed term when the rate differential is large enough to justify the break cost, particularly if they can negotiate a lower ongoing rate or access better features such as an offset account or higher extra repayment limits. Others wait until the fixed term ends and refinance without a fixed-rate break cost at that point. Both approaches can be appropriate and depend on your specific numbers and timeline.
Ready to Review Your Fixed Rate Investment Loan Options?
Whether you're considering fixing your investment loan, reviewing an existing fixed-rate facility or comparing fixed, variable and split loan structures, Wealthcove can compare investment loan options across banks and specialist lenders based on your circumstances and investment objectives.
If your fixed rate is approaching expiry, Wealthcove can also review your existing lending and assess whether refinancing or negotiating with your current lender may provide a more competitive outcome. Book an appointment with Liam Pahl, Finance & Mortgage Broker at Wealthcove or call Liam directly on 0452 646 192 to discuss your investment loan options.
