Fixed rate investment loans lock your interest rate for one to five years, which can protect rental cash flow but introduce break costs if you need to exit early.
Carnegie's rental market attracts a mix of young professionals and tertiary students given its proximity to Monash University's Caulfield campus, and vacancy rates in the Glen Eira council area have remained low. For property investors in the suburb, choosing between variable and fixed rate structures often comes down to how much certainty you need around repayments and whether you expect to refinance, sell or restructure within the fixed term.
How Fixed Rate Terms Work on Investment Loans
A fixed rate term means the interest rate on your loan will not change for a set period, typically one, two, three or five years. During that period, your repayments remain the same regardless of what the Reserve Bank does or how lender rates move. When the fixed term ends, the loan reverts to the lender's variable rate unless you negotiate a new fixed term.
Most lenders calculate the fixed rate based on wholesale funding costs at the time you lock in, not the cash rate. That means fixed rates can move independently of variable rates, and they often rise or fall several weeks before the RBA makes an announcement. The rate you receive depends on your loan-to-value ratio, the term you choose, and whether the loan is interest-only or principal and interest.
Why Investors Use Fixed Rates Differently to Owner-Occupiers
Investors frequently choose interest-only repayments to keep monthly costs low and maximise tax deductions, because principal repayments are not claimable. When you combine interest-only with a fixed rate, the repayment amount is predictable and often lower than a principal and interest variable loan, which helps maintain positive or neutral cash flow.
Consider an investor who purchased a two-bedroom apartment near Koornang Road with rental income covering most of the loan cost. By fixing the rate on an interest-only term for three years, the investor could forecast cash flow accurately and plan other portfolio activity without worrying about rate rises eroding rental yield. The downside is that interest-only periods are usually capped at five years, and you need to plan for either refinancing or switching to principal and interest before that period ends.
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Break Costs and Why They Matter for Investment Loans
Break costs are the fee a lender charges if you repay a fixed rate loan in full before the term ends. This happens when you sell the property, refinance to another lender, or pay down a large lump sum beyond any partial repayment allowance.
The lender calculates break costs based on the difference between the rate you locked in and the rate they can now lend that money at for the remaining term. If rates have fallen since you fixed, the lender loses margin and passes that loss to you. If rates have risen, break costs are usually zero because the lender can re-lend at a higher rate.
In our experience, investors underestimate how quickly circumstances change. A property you planned to hold for ten years might need to be sold in year two because of changes to your income, borrowing capacity, or because another opportunity appears. If you are on a fixed rate, the break cost can run into thousands of dollars and erode the profit from the sale or refinance. That risk is higher when you fix for five years compared to one or two.
Partial Fixed Rate Structures for Flexibility
Some investors split their loan into a fixed portion and a variable portion, which gives partial rate protection while maintaining the ability to make extra repayments or exit part of the loan without penalty.
For example, an investor might fix 60 per cent of the loan on a three-year term and leave 40 per cent variable. The fixed portion delivers stable repayments, and the variable portion allows lump sum payments or early exit without break costs. This structure works well if you expect to use equity or sell within a few years but still want protection against rate increases in the short term. You can read more about how these splits are structured on the investment loans page.
Fixed Rates and Interest-Only Periods After 1 July 2027
From 1 July 2027, net rental losses on most residential investment properties purchased after 7:30pm AEST on 12 May 2026 can only be offset against other residential rental income, not salary or wages. Properties that qualify as eligible new builds remain exempt and can be negatively geared under existing rules.
If your property is subject to the quarantine rule, maintaining positive or neutral cash flow becomes more important because you cannot use rental losses to reduce your tax bill in other income categories. Fixing your rate can help lock in repayments that match expected rental income, but you need to account for periods when the property might be vacant or require repairs that reduce net income.
Carnegie's rental yield has historically been supported by demand from students and hospital staff, but even in areas with strong demand, vacancies happen. Fixing your rate does not eliminate vacancy risk, it only stabilises the interest cost.
When Fixed Rates Make Sense and When They Do Not
Fixed rates suit investors who value certainty, expect rates to rise, or need to forecast cash flow for other financial commitments. They are less useful if you plan to sell or refinance within the fixed term, or if you want the flexibility to make extra repayments.
If you are buying an investment property with the intention to renovate and refinance within 18 months to access increased equity, a variable rate will usually save you money because you avoid break costs when you refinance. If you are holding the property long term and want stable repayments while you build a portfolio, a fixed term of two to three years can provide breathing room without locking you in for too long.
Refinancing a Fixed Rate Investment Loan
Refinancing during a fixed term means either paying break costs or waiting until the term ends. If your current lender offers an uncompetitive revert rate and you are locked in for another two years, the cost of waiting might exceed the cost of breaking and moving now.
Some lenders allow internal refinances or product switches without break costs, but this usually only applies if you stay with the same lender and do not increase the loan amount. If you want to consolidate debt, access equity or move to a lender with lower rates, you will need to factor in break costs or wait for the fixed term to expire. The refinancing page covers how to assess whether breaking a fixed loan makes financial sense based on rate differentials and remaining term.
We regularly see investors approach the end of a fixed term without a plan, and they end up on a higher revert rate because they did not review options 90 days before expiry. Lenders typically allow you to negotiate a new fixed rate or switch products within that window, and if you miss it, you lose the opportunity to lock in a new rate before reverting.
Serviceability and Fixed Rate Investment Loans Under APRA Rules
Lenders assess your ability to service an investment loan using a buffer of three percentage points above the product rate, regardless of whether you choose fixed or variable. That means even if you fix at a lower rate, the lender will test whether you can afford repayments if the rate were three percentage points higher.
From 1 February 2026, lenders are also subject to a debt-to-income cap that limits how many new investor loans they can approve at six times your annual income or greater. If your income is borderline, fixing at a lower rate does not improve your serviceability assessment because the lender uses the buffered rate, not the actual rate, to calculate your capacity. You can explore how lenders calculate your capacity on the borrowing capacity page.
Choosing the Right Term Length
One-year fixed terms offer the least lock-in risk but provide limited protection if rates keep rising. Five-year terms offer the most stability but carry the highest break cost risk and the longest commitment.
Most investors in Carnegie who fix choose two or three-year terms, which balance certainty with flexibility. If you are buying an established apartment and expect the negative gearing rules to affect future purchases, locking in for two years gives you time to assess how the policy plays out and whether you want to pivot your strategy toward new builds or other asset classes.
If you already hold multiple properties and want to stabilise repayments across your portfolio, staggering fixed terms so that one loan expires each year can reduce the risk of all your loans reverting to variable at the same time during a high-rate environment.
Call one of our team or book an appointment at a time that works for you to discuss which fixed rate term suits your investment strategy and whether splitting your loan between fixed and variable makes sense for your situation.
Important: This does not constitute tax advice and it is recommended to seek advice from your Accountant or Financial Planner for your individual circumstances.
