Beginner's Guide to Fixed Rate Investment Loans

Fixed Rate Investment Loans Lock Your Repayments for a Set Period

A fixed rate investment loan holds your interest rate steady for one to five years, regardless of what the Reserve Bank does with the cash rate. Your repayment amount stays the same each month during that fixed term. That stability can help with cash flow planning when you're managing rental income against holding costs, but it comes with restrictions that variable rate loans don't carry.

If you're buying an investment property in Wallsend, you'll notice most lenders offer fixed rate periods of one, two, three, four or five years. The longer the fixed period, the less flexibility you'll usually have during that term. Once the fixed period ends, your loan reverts to the lender's standard variable rate unless you negotiate a new fixed term or refinance.

Rate Lock Prevents Surprises During Settlement

When you apply for a fixed rate investment loan, most lenders will offer you a rate lock that holds your approved rate for 90 days while you settle the property purchase. Rate lock periods vary between lenders, some offer 60 days, others extend to 120 days if you're building or waiting on a longer settlement.

Consider an investor who applies for finance in January to buy a unit near Wallsend Plaza, with settlement scheduled for late March. If the lender increases fixed rates in February, the rate lock protects the investor from that increase. If rates fall instead, the investor pays the higher locked rate unless the lender offers a policy to pass on rate drops during the lock period. Some lenders do, most don't. Check the rate lock terms before you commit, particularly if you're settling on a property with a delayed completion date.

Interest Only Repayments Reduce Monthly Outgoings

Interest only repayments mean you pay only the interest component each month without reducing the loan balance. Most lenders allow interest only periods of one to five years on investment loans, though some cap it at three years for new lending. At the end of the interest only period, your loan converts to principal and interest repayments, and your monthly payment increases.

Interest only suits investors who want to maximise tax deductions and preserve cash flow, particularly during the early years of ownership when vacancy rates or maintenance costs might be higher. Wallsend has a rental vacancy rate that sits below the broader Hunter region average, but if you're holding a property between tenants or managing renovations, the lower repayment can make a difference.

Fixed rate loans with interest only repayments are common, but not every lender offers them at the same pricing. Some lenders add a margin to the fixed rate if you choose interest only, others price them the same as principal and interest fixed loans. The difference can be 0.10 to 0.30 percentage points depending on the lender and your deposit size.

Offset Accounts Are Rare on Fixed Rate Investment Loans

An offset account is a transaction account linked to your loan. The balance in the offset account reduces the interest you're charged without affecting your repayments. On a variable rate investment loan, a full offset account can save thousands in interest each year if you hold surplus cash.

Most fixed rate investment loans don't offer offset accounts. A handful of lenders provide partial offsets, which reduce your interest by a percentage of the offset balance rather than the full amount. If you're choosing between a fixed rate loan with no offset and a variable rate loan with a full offset, calculate how much surplus cash you're likely to hold and how much interest that would save before you decide. For investors in Wallsend who might be accumulating a deposit for a second property or holding funds between renovations, a full offset on a variable loan can deliver more value than the rate certainty of a fixed loan.

If you do lock in a fixed rate, keep your surplus cash in a high interest savings account rather than leaving it in a standard transaction account earning nothing.

Repayment Flexibility Is Limited During the Fixed Period

Fixed rate loans restrict your ability to make extra repayments. Most lenders allow between $10,000 and $30,000 in additional repayments per year without penalty. Some allow none. If you make extra repayments beyond the lender's annual cap, you'll be charged a break cost, which can run into thousands of dollars depending on how much rates have moved since you fixed.

Break costs also apply if you refinance or sell the property before the fixed term ends. The break cost is calculated based on the lender's funding cost difference between your fixed rate and the current wholesale rate for the remaining term. If rates have fallen since you fixed, the break cost will be higher because the lender loses the margin they expected to earn.

An investor holding a fixed rate loan on a Wallsend property who decides to sell 18 months into a three year fixed term might face a break cost of several thousand dollars if rates have dropped during that period. The exact figure depends on the loan amount, the remaining fixed term, and how far rates have moved. Some lenders waive break costs if you're refinancing to another product with the same lender, but most don't.

If you think you might sell or refinance within the fixed term, a variable rate loan or a shorter fixed period will give you more flexibility. The Get Approved team can walk you through refinancing options if your circumstances change mid-term.

Portability Lets You Transfer the Loan to a New Property

Portability means you can move your existing fixed rate loan to a different property without paying break costs. Not all lenders offer portability, and those that do usually apply conditions.

The new property must be of equal or greater value, you'll need to requalify for the loan amount, and the lender must approve the new security. If you're buying a second investment property and selling the first, portability can let you keep your fixed rate without penalty, but you'll still need to apply for additional borrowing if the new property costs more.

Portability is uncommon on fixed rate investment loans compared to owner occupied lending, and the feature is rarely advertised upfront. If you're planning to upgrade or consolidate properties during the fixed term, confirm portability terms with the lender before you lock in the rate.

Split Rate Loans Combine Fixed and Variable Features

A split rate loan divides your borrowing between a fixed rate portion and a variable rate portion. You choose the split, typically 50/50 or 60/40, though any combination is possible.

The fixed portion gives you rate certainty on part of your repayments. The variable portion gives you access to offset accounts, unlimited extra repayments, and the flexibility to pay down the loan or refinance without break costs. You can also redraw from the variable portion if the lender offers a redraw facility.

In our experience, investors in Wallsend who want some rate protection but also want to keep their options open find a split structure works well. Consider an investor borrowing $500,000 to buy a townhouse near the Wallsend town centre. They fix $300,000 for three years and leave $200,000 variable with a full offset. If they hold $50,000 in the offset account, they're only paying interest on $150,000 of the variable portion. If rates rise, the fixed portion is protected. If rates fall, the variable portion benefits immediately.

Split loans do involve two sets of fees in some cases, and not all lenders price them competitively. Compare the total cost of a split against a fully fixed or fully variable loan before you decide. If you're weighing up investment loan options, we'll run those comparisons for you.

Fixed Rate Discounts Depend on Loan Size and Deposit

Lenders offer different fixed rates depending on your loan to value ratio. A lower LVR, meaning a larger deposit, usually gets you a better rate. The threshold is typically 80 per cent LVR. Below that, you avoid Lenders Mortgage Insurance and access the lender's standard pricing. Above 80 per cent, you'll pay LMI and often a higher fixed rate as well.

Some lenders also tier their fixed rates by loan amount. Borrowing above $500,000 or $750,000 can unlock a rate discount of 0.10 to 0.20 percentage points. If you're borrowing close to one of those thresholds, it's worth checking whether a slightly larger loan amount would reduce your rate enough to offset the extra interest on the additional borrowing.

Wallsend's median property values sit well within the range where loan amount discounts apply, so if you're buying a renovated home in one of the suburb's established pockets near the railway line, you're likely to be in the discount tier.

Comparison Rates Don't Tell the Whole Story for Fixed Loans

The comparison rate is a single figure that combines the interest rate and most fees over a 25 year loan term. It's designed to help you compare loan products, but it has limits.

For fixed rate loans, the comparison rate assumes you stay on the fixed rate for the full 25 years, which never happens. Once your fixed term ends, you revert to a variable rate or refinance. The comparison rate also assumes a $150,000 loan amount, which won't match your actual borrowing if you're buying property in Wallsend or anywhere in the Hunter region.

Use the comparison rate as a starting point, but calculate the actual interest cost and fees based on your loan amount, deposit size, and how long you plan to hold the fixed rate. A loan with a higher comparison rate might still cost you less over the fixed term if the upfront fees are lower or the rate itself is more competitive.

Call one of our team or book an appointment at a time that works for you. We'll compare fixed rate features across lenders and structure a loan that fits your investment strategy, whether that's a single property in Wallsend or a portfolio you're building across the region.

Frequently Asked Questions