Smart ways to approach fixed rate investment loans

Fixed rate investment loans lock in certainty when you need it most

A fixed rate on an investment loan gives you a set repayment amount for a chosen period, typically between one and five years. Interest charges stay the same regardless of what happens to the cash rate during that time. The strategy you choose depends on where you are in your working life and what you want the property to do for you.

Consider someone in their early 30s buying a first rental property in Mackay while working a 14/14 roster at a Bowen Basin mine site. At the suburb's current median, the repayment on a fixed rate gives them a known cost they can budget around while they build equity. That certainty matters when your income already fluctuates with roster changes and potential site shutdowns.

Another scenario involves a worker in their late 40s who already owns a home and wants to add a second property before leverage becomes harder to access. Fixing the rate on the new loan protects repayment capacity during the years when lenders start tightening serviceability as you approach retirement age.

How fixed rate costs compare across different purchase scenarios

The loan amount you need depends on your deposit and the property type you choose. Under current lending policy, most lenders require a 10 per cent deposit for investment purchases, plus costs. At the higher end of borrowing, Lenders Mortgage Insurance adds to the upfront outlay when your deposit sits below 20 per cent.

In Mackay, where the LGA house median reached $725,000 in the first half of this year across 858 sales, a 10 per cent deposit scenario means borrowing around $652,500 plus capitalised LMI. The fixed rate portion of that loan gives you predictable repayments during the early years when rental income may not cover all holding costs.

Townsville presents a different set of numbers. The LGA house median hit $700,000 across 1,469 sales in the same period, with unit stock at $471,000 across 424 transactions. A unit purchase at that median requires a smaller loan amount and delivers a gross yield around 6.07 per cent at current rental levels of $550 per week, well above the house yield of 4.24 per cent. A fixed rate here protects cashflow during vacancy periods, which matter more when you rely on rental income to service the debt.

Why fixing part of the loan often works better than fixing all of it

Splitting your loan between fixed and variable portions gives you access to offset accounts on the variable side while keeping predictable repayments on the fixed portion. Offset accounts reduce the interest charged on the variable loan by the balance sitting in the linked account, but most lenders do not offer offset functionality on fixed rate products.

In our experience, FIFO workers accumulate cash quickly during on-roster periods and then draw it down for living costs and travel during off-roster weeks. The variable portion with an offset account absorbs that cash when it sits idle, cutting the interest bill on that segment of the debt. The fixed portion stays untouched and continues to provide repayment certainty.

A 50/50 split is common, but the right balance depends on how much surplus income you expect to park in offset and how much repayment certainty you want. Someone with irregular bonuses and overtime shaded at 80 per cent under Suncorp's non-essential services policy might prefer a larger variable portion to take advantage of lump sum deposits when those payments land.

Fixed rates and the new negative gearing rules from the 2027-28 income year

Under changes that took effect from royal assent in June this year, losses on established residential investment properties purchased after 7:30pm AEST on 12 May last year can only be offset against income from other residential properties from the 2027-28 income year onward. Properties you already owned at that date, and eligible new builds purchased after that date, remain fully deductible against all income including wages.

The fixed rate you choose does not change your tax treatment, but the certainty of a fixed repayment helps you model the cashflow gap during the years when you cannot claim losses against your FIFO salary. If you purchased an established property in Townsville after 12 May last year and fix the rate for three years, you know exactly what the interest cost will be through to mid-2029, and you can estimate the portion of that loss you can carry forward to offset against future rental income or capital gains on residential property.

For workers buying eligible new builds, including dwellings constructed on previously vacant land or developments that increase dwelling numbers, the old negative gearing rules continue to apply. Fixing the rate on a new build loan gives you predictable deductions against your full FIFO income for the life of the fixed term.

What happens to your repayments when the fixed term ends

At the end of the fixed period, your loan reverts to the lender's standard variable rate unless you negotiate a new fixed term. The revert rate is typically higher than the discounted variable rate offered to new borrowers, which means your repayment can jump significantly if you do not act before expiry.

We regularly see this with workers who fixed during the low rate environment a few years back and are now rolling off onto variable rates several percentage points higher. The strategy at that point is either to refinance the investment loan to a new lender offering a lower rate, or to negotiate a new fixed or discounted variable rate with your existing lender before the fixed term expires.

If you are in your 50s and approaching the end of a roster career, lenders assess your refinance application based on projected retirement income rather than current FIFO earnings. Fixing a rate while you still have full income recognition gives you a buffer during the transition period, but you need to plan the fixed term length around your expected exit date from site work.

Interest only repayments and how they fit with fixed rate investment loans

Interest only repayments reduce your monthly outgoing by not requiring any principal reduction during the interest only period, which is typically capped at five years for investment loans. You still pay the full interest charge, but the repayment amount is lower than a principal and interest loan at the same rate.

Combining interest only with a fixed rate gives you the lowest possible repayment certainty during the interest only window. This approach suits scenarios where you expect income growth or plan to sell within a few years, or where you want to maximise your ability to service multiple investment loans at once.

From a tax perspective, the interest on an investment loan remains fully deductible under current law regardless of whether the loan is interest only or principal and interest, provided the property is rented or genuinely available for rent. The loan structure does not change the deduction, but it does change your equity position. At the end of a five-year interest only period, your loan balance is the same as it was at settlement, and you have not built any equity through debt reduction.

Serviceability pressure under the APRA DTI limits and how fixing helps

From 1 February this year, lenders operating under APRA supervision can only write up to 20 per cent of new investor loans to borrowers with a total debt to income ratio of six times gross annual income or higher. That cap applies separately to investment lending and owner-occupier lending within each bank's portfolio.

If your total borrowing across all loans approaches six times your declared income, some lenders tighten serviceability buffers, reduce maximum loan amounts or decline the application altogether. Income shading makes this threshold easier to hit. Suncorp shades FIFO overtime and allowances to 80 per cent for non-essential services workers who have earned that income continuously for six months or more. If your gross income is $180,000 but only $150,000 is recognised after shading, your DTI is calculated on the lower figure.

Fixing the rate on your investment loan does not change the DTI calculation, but it does give you repayment certainty if you are already sitting close to the six times threshold and cannot afford rate rises on a variable loan. Non-bank lenders regulated by ASIC rather than APRA are not subject to the DTI portfolio caps, which can open up additional borrowing capacity if you are above the threshold at a major bank.

Using equity from your FIFO property to fund the next investment purchase

Once you have built equity in your first property, either through capital growth or principal reduction, you can use that equity as a deposit for a second investment loan without needing to save another cash deposit. Lenders typically allow you to borrow up to 80 per cent of the value of the existing property without requiring LMI, leaving 20 per cent equity untouched as a buffer.

If your Mackay house purchased a few years ago has increased in value, the equity release calculation is based on the current valuation, not the original purchase price. That released equity can fund a 10 per cent deposit plus costs on a second property, with the new loan also eligible for a fixed rate if you want to lock in the cost.

The risk with this approach is that you now have two investment loans, both accruing interest, and rental income needs to cover a larger proportion of your total debt servicing. Fixing the rate on one or both loans reduces the risk of rate rises pushing you into negative cashflow during a period when one property sits vacant or requires unexpected maintenance.

Refinancing an existing variable rate investment loan to lock in a fixed rate

You do not need to wait until you buy a new property to access a fixed rate. Refinancing an existing variable rate investment loan to a fixed rate product, either with your current lender or a new one, locks in your repayment at whatever stage of the property cycle you choose.

This strategy makes sense when you expect rates to rise or when your income is about to drop due to a roster change, redundancy or transition to part-time work. The fixed rate provides a known cost for the next few years regardless of what happens to the cash rate, and refinancing to a new lender can also deliver a lower rate than your current lender is offering on their fixed products.

Some lenders offer fixed rate discounts or cashback incentives for refinance customers. ME Bank introduced a $2,000 LMI cashback from 18 August last year for loans requiring LMI, including investment loans between 80.01 per cent and 95 per cent LVR with minimum new lending of $400,000. That cashback offsets part of the LMI cost if you are refinancing with a smaller deposit or accessing equity that pushes your LVR above 80 per cent.

Investment loans are about building rental income and wealth over time, and a fixed rate gives you control over one of the biggest variables in that equation. The right structure depends on your income stability, how much cash you can park in offset, and how close you are to retirement. Call one of our team or book an appointment at a time that works for you.

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