Fixed Rate Investment Loans: When to Lock In

Locking in a fixed rate on an investment property loan stops your repayments moving around for the period you choose. That certainty matters when rental income needs to cover mortgage costs and you want to plan your cashflow without surprises.

The question most property investors face is whether that certainty is worth the trade-off. Fixed rates remove flexibility in exchange for stability, and the wrong timing can lock you into a rate higher than what variable borrowers pay months later. The decision depends on where rates are heading, what your rental income covers, and how you plan to manage the loan over the next few years.

Why Property Investors Choose Fixed Rates

Investors fix their rates to protect rental cashflow from rising repayments. If you own a property that generates $2,400 per month in rental income and your current repayments sit at $2,100, a rate rise of just 0.5% could push your repayments to $2,350. That cuts your monthly buffer from $300 to $50. Fixing the rate removes that risk for the duration of the fixed term.

Consider a scenario where someone owns a two-bedroom unit generating $550 per week in rental income. Their investment loan sits at $480,000 with principal and interest repayments. At a variable rate, their repayments move every time the Reserve Bank adjusts rates. They fix at 5.89% for three years, which gives them repayments of $2,900 per month. That leaves them with a $480 monthly buffer after accounting for rental income, and they know that buffer won't shrink for three years regardless of what rates do.

How Fixed Rates Affect Negative Gearing Benefits

Your interest payments are a claimable expense against rental income, and fixing your rate changes how much interest you pay over time. Fixed rates tend to start higher than variable rates, which means your interest deduction is larger during the fixed period. That can increase your negative gearing benefits if the property runs at a loss.

The trade-off is that you lose the ability to make extra repayments without penalty during the fixed term. Most lenders cap additional payments at $10,000 to $30,000 per year on a fixed loan. If you receive a bonus or inheritance and want to pay down the loan, you'll either pay break costs or wait until the fixed term ends. For investors focused on maximising tax deductions rather than paying down debt quickly, that restriction matters less than for owner-occupiers.

Split Loans: Fixing Part and Keeping Part Variable

You don't have to fix the entire loan amount. Splitting your loan between fixed and variable portions gives you some rate certainty while keeping access to features like offset accounts and unlimited extra repayments on the variable portion.

In our experience, investors often split their loan 50/50 or 60/40 between fixed and variable. If you have a $600,000 investment property loan, you might fix $300,000 at a set rate for three years and leave $300,000 on a variable rate with an offset account attached. Your rental income sits in the offset, reducing interest on the variable portion, while the fixed portion protects half your repayments from rate rises.

This approach works when you want protection but still need flexibility for portfolio growth. If you plan to use equity release from this property to fund another purchase, the variable portion makes that process smoother because you're not locked into break costs.

Fixed Rate Break Costs: How the Calculation Works

If you exit a fixed rate loan before the term ends, the lender charges break costs to cover the difference between your fixed rate and the current wholesale rate they can lend at. When rates have dropped since you fixed, break costs can run into thousands of dollars. When rates have risen, break costs may be zero or even result in a refund.

Suppose you fixed $500,000 at 6.2% for five years, and two years later rates have dropped to 5.5%. If you want to refinance to another lender or sell the property, the lender calculates the lost interest over the remaining three years. That calculation often produces a break cost between $15,000 and $25,000 depending on the rate gap and time remaining. Lenders don't waive this, and it gets added to your payout figure or new loan balance.

Before fixing, check the lender's break cost formula. Some lenders calculate break costs more aggressively than others, and that difference matters if you think you might sell or refinance before the fixed term ends.

Interest Only Versus Principal and Interest on Fixed Loans

Many investors choose interest only repayments to keep their monthly costs lower and maximise their cashflow. You can fix an interest only loan just like a principal and interest loan, but the rate may sit slightly higher depending on the lender and your loan to value ratio.

Interest only repayments on a $500,000 loan at 5.89% cost $2,454 per month. Principal and interest repayments on the same loan cost around $2,970 per month. That $516 difference can determine whether your rental income covers the repayments or whether you need to contribute from your own income each month. Fixing an interest only loan removes repayment uncertainty during the interest only period, which typically lasts one to five years.

When the interest only period ends, the loan reverts to principal and interest and your repayments jump. If you've fixed the rate and the interest only period expires before the fixed term, your repayments increase mid-fix. That combination catches some investors off guard, so check both the fixed term length and the interest only period length before locking in.

When Fixing Makes Sense for Portfolio Growth

If you plan to buy another investment property within the next few years, fixing your current loan can stabilise your borrowing capacity. Lenders assess your borrowing capacity based on your existing loan repayments, and a fixed rate loan means your repayments won't increase due to rate rises during the fixed term. That keeps your borrowing capacity higher when you apply for the next loan.

As an example, someone with two investment properties already might fix both loans before applying for a third. Their total repayments across both properties sit at $4,800 per month. If rates rise by 0.75% before they apply for the next property, those repayments would jump to $5,400. That $600 monthly increase reduces how much they can borrow for the third property by roughly $100,000. Fixing both loans before applying removes that risk and locks in their borrowing capacity for the next purchase.

This approach works when you have a clear timeline for your next purchase and rates are either stable or rising. If rates are falling, locking in higher fixed rates reduces your borrowing capacity compared to what you'd have on a lower variable rate.

What Happens When Your Fixed Rate Expires

When your fixed term ends, the loan automatically moves to the lender's standard variable rate unless you take action. That standard rate is usually higher than the variable rates advertised to new customers, sometimes by 0.5% to 1.0%. Your repayments can jump significantly if you don't refinance or renegotiate before the fixed term expires.

Most lenders contact you 60 to 90 days before your fixed rate expiry to offer renewal options. You can fix again at the current rates, switch to variable, or refinance to another lender. If your equity position has improved or your rental income has increased since you first fixed, you may qualify for a lower rate by refinancing. Investors often use the expiry date as a trigger to review their entire loan structure and consider whether it still suits their portfolio growth plans.

Goodwin Home Loans works with investors across Australia to structure fixed rate loans that fit your property investment strategy. We access investment loan options from banks and lenders across the country, which means you're not limited to one lender's fixed rate offerings. Call one of our team or book an appointment at a time that works for you.

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