Smart ways to use fixed rate features on investment loans

Fixed Rate Investment Loans Lock In Your Rate and Your Borrowing Costs

A fixed rate investment loan holds your interest rate steady for a set period, typically between one and five years. Your repayments stay the same regardless of what happens with the Reserve Bank cash rate, which means you can forecast your borrowing costs and plan for vacancy periods or capital improvements without guessing what your next repayment will be.

Consider a network engineer who secures a fixed rate at 5.89% on a 400,000 loan for an apartment. If variable rates climb to 6.5% over the following two years, the fixed rate holds. The predictability matters when you're managing rental income that can fluctuate between tenancies or dealing with strata levies that adjust annually.

Interest Only Repayments on Fixed Rate Investment Loans Reduce Your Monthly Outgoings

Most lenders allow you to structure a fixed rate investment loan as interest only for the fixed period. You pay only the interest portion each month, which keeps your repayments lower and preserves cash flow for other investments or living expenses. The loan balance doesn't reduce, but the tax deduction applies to the full interest amount.

In our experience, network engineers often prefer interest only terms on investment properties because it frees up income to accelerate repayments on their owner-occupied home or to build a deposit for a second investment property. At current variable rates, an interest only repayment on a 400,000 loan sits around 2,000 per month, compared to roughly 2,600 for principal and interest. That difference can fund another 7,200 in annual savings or offset contributions.

Fixed Rate Periods Between One and Five Years Give You Different Levels of Flexibility

Shorter fixed terms, such as one or two years, typically come with lower rates but require you to refinance or revert to variable sooner. Longer terms, such as four or five years, offer extended rate certainty but usually carry a higher rate and stricter conditions if you need to make changes before the term ends.

A two-year fixed term works well if you expect rates to stabilise or fall within that window, or if you're planning to sell or refinance once you've built more equity. A five-year term suits investors who want to set repayments and forget them, particularly if you're holding the property long term and don't anticipate needing access to equity or making large extra repayments.

Break Costs Apply If You Exit a Fixed Rate Loan Early

If you sell the property, refinance to another lender, or repay the loan in full during the fixed period, the lender may charge a break cost. The cost reflects the difference between the rate you locked in and the rate the lender can now earn by re-lending that money. Break costs can run into thousands of dollars if rates have dropped significantly since you fixed.

Some lenders allow partial extra repayments up to a certain limit, such as 10,000 or 20,000 per year, without triggering a break cost. If you're likely to receive RSU vesting events or bonuses during the fixed term and want the option to reduce your loan balance, check the partial repayment allowance before you commit. A fixed rate loan with a 20,000 annual repayment buffer gives you more flexibility than one with no extra repayments allowed at all.

Offset Accounts Are Rare on Fixed Rate Investment Loans

Most fixed rate investment loans don't include an offset account. A small number of lenders offer a partial offset, where only a portion of the balance in the linked account reduces the interest you're charged, but full offset accounts on fixed rate investment products are uncommon.

If you want the tax efficiency of an offset account and the certainty of a fixed rate, consider a split loan structure. You fix a portion of the loan, such as 60% or 70%, and leave the remainder on a variable rate with an offset account attached. That way, you can park surplus cash in the offset to reduce interest on the variable portion while still holding most of your borrowing at a fixed rate. This approach suits network engineers who have variable income from bonuses or contract work and want to manage cash flow without losing the benefit of rate certainty.

Fixed Rate Investment Loans Don't Automatically Include a Redraw Facility

Unlike most variable rate loans, fixed rate products often don't offer redraw on any extra repayments you make within the annual limit. If you repay 15,000 during the year and later need access to that money, you may not be able to withdraw it until the fixed term ends.

If you're planning to use surplus income to pay down the loan during the fixed period and want the option to access those funds later, confirm whether redraw is available and whether any fees apply. Some lenders allow redraw on fixed rate loans but charge a fee each time you withdraw. Others don't offer redraw at all. This distinction matters if you're building a property portfolio and need liquidity for deposit on the next purchase.

Rate Discounts on Fixed Rate Investment Loans Depend on Your Loan Amount and Deposit Size

Lenders tier their fixed rates based on the loan to value ratio and the total amount borrowed. A loan with an LVR below 80% typically attracts a better rate than one above 80%, and larger loan amounts often qualify for deeper discounts.

If you're borrowing 500,000 or more and your deposit brings the LVR to 75%, you'll usually see a rate that's 0.10% to 0.30% lower than someone borrowing 300,000 at 85% LVR. The difference might seem small, but over a three-year fixed term it can save several thousand dollars in interest. When you're comparing investment loan options, check the rate tiers for each lender rather than relying on the advertised headline rate, which often applies only to the largest loan amounts at the lowest LVR.

Switching From Fixed to Variable or Refinancing Before the Term Ends Requires Careful Timing

If you're approaching the end of your fixed term and rates have moved, you can choose to refix, switch to variable, or refinance to another lender. Most lenders allow you to lock in a new rate up to 90 days before your current fixed term expires, which gives you time to compare offers without rushing the decision in the final week.

If you decide to refinance before the fixed term ends, calculate the break cost and compare it to the interest saving you'll achieve with the new loan. In some cases, particularly when rates have fallen significantly, the saving from refinancing outweighs the break cost. In other cases, you're better off waiting until the fixed term expires and refinancing without penalty.

Fixed Rate Investment Loans Work Well When You Want Predictable Costs and Plan to Hold the Property

Fixed rate investment loans suit network engineers who value certainty over flexibility and who plan to hold the property for at least the duration of the fixed term. If you're buying an investment property in a high-demand area and expect rental income to remain stable, locking in your rate removes one variable from your cash flow planning. If you're likely to sell, refinance, or access equity within the next year or two, a variable rate with full offset and redraw flexibility may serve you better.

Call one of our team or book an appointment at a time that works for you. We'll compare fixed and variable investment loan products from lenders across Australia and structure the loan to match your income, your property plans, and your timeline.

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