Fixed rate terms on investment loans lock in your interest rate for a set period, typically between one and five years. The term you choose directly affects your borrowing cost certainty, your ability to refinance or sell, and the break fees you may face if market rates move against you.
How Fixed Rate Terms Apply to Investor Loans
Investor loans attract higher risk weights under bank capital rules than owner-occupied loans, which translates to slightly higher fixed rates and more conservative lending conditions. A fixed rate investment loan locks in the rate for the nominated term, while repayment structure, loan features and serviceability tests remain separate decisions. You can fix on either an interest-only or principal-and-interest basis, and the fixed period does not have to match your interest-only term if applicable.
Consider an investor in Sutherland Shire who fixed 60 per cent of an investment loan at 5.29 per cent for three years while leaving 40 per cent on variable. Rental income covered the interest on the fixed portion, and the variable split gave access to an offset account where surplus business cashflow reduced the effective rate on the unfixed portion. When rates climbed, the fixed portion provided stability. When a commercial opportunity arose two years into the term, the investor refinanced the variable portion without penalty and left the fixed portion in place until maturity.
Choosing Between One, Three and Five Year Fixed Terms
Shorter fixed terms typically carry lower rates but expire sooner, while longer terms cost more upfront but extend rate certainty. The right term depends on your business cashflow cycle, your view on interest rate direction, and how long you intend to hold the property. A one-year fix might suit a business owner expecting a capital injection or sale within 12 months. A three-year term is often selected by investors who want rate certainty beyond the immediate cycle without committing to a longer lock. Five-year fixes appeal to those prioritising long-term repayment predictability, particularly where rental yield is tight and rate volatility would disrupt cashflow.
An investor purchasing a unit near Cronulla Mall might choose a three-year fix on the assumption that interest rates will stabilise within that window and that the property will either be retained as a long-term hold or sold before the term expires. The three-year window avoids the higher cost of a five-year fix and the rollover risk of a one-year term. If the investor's business turnover increases significantly in year two, the variable portion of the loan can absorb extra repayments, and the fixed portion continues to provide a known quarterly cost for budgeting.
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What Happens When a Fixed Rate Term Ends
When your fixed term expires, the loan automatically reverts to the lender's standard variable rate for investor loans unless you proactively refix or refinance before expiry. Lenders typically allow you to lock in a new fixed rate up to 90 days before the current term ends, and some brokers will begin the refinance conversation four to six months out if a better rate or product is available elsewhere.
The reversion rate is usually higher than both the ongoing variable rate offered to new borrowers and any loyalty rate your lender may offer on request. If you do nothing, your repayments may increase by several hundred dollars per month depending on loan size. Investors holding multiple properties often stagger fixed terms across their portfolio so that only one loan expires in any given year, spreading the refinancing workload and reducing exposure to rate spikes at a single point in time.
Break Costs and How They Are Calculated
Break costs arise when you repay, refinance or increase repayments on a fixed rate loan before the term ends, and the lender's cost of funds has fallen since you fixed. The lender calculates the present value of the interest rate differential between your fixed rate and the wholesale rate the lender can now earn on the money for the remaining term. If market rates have risen since you fixed, the break cost is usually zero. If rates have fallen, the cost can run into the thousands or tens of thousands depending on loan size and time remaining.
An investor with a fixed investment loan of $600,000 at 5.49 per cent with two years remaining may face a break cost of $12,000 to $18,000 if wholesale rates have dropped by 0.80 percentage points since the loan was fixed. That calculation is based on the forgone margin over the remaining term, discounted to present value. The break cost is payable on discharge or refinance and is not tax deductible as a borrowing expense. Some lenders allow partial prepayments up to a capped amount, often $10,000 or $20,000 per year, without triggering break costs, and those caps are set out in the loan contract.
Portability, Top-Ups and Feature Restrictions During Fixed Terms
Most fixed rate investment loans do not permit redraw, and offset accounts are either unavailable or limited to the variable portion of a split loan. Extra repayments above any annual cap are either blocked or subject to break fees. Loan top-ups to fund renovations or further investment usually require refinancing the entire loan or adding a separate variable facility, as lenders will not extend a fixed rate loan mid-term without breaking and refixing the entire amount.
Portability, which allows you to transfer the loan to a new security without breaking the fixed term, is offered by some lenders but not all. Where it is available, the new property must meet the lender's current serviceability and security criteria, and any increase in loan amount will be written as a separate variable loan. An investor moving from an older unit in Caringbah to a newer townhouse would need to confirm portability in advance and understand that settlement timing on both sale and purchase must align, as most lenders will not hold a fixed rate loan without registered security for more than a few days.
How Debt-to-Income Limits and Serviceability Rules Affect Fixed Rate Investment Loans
Since February 2026, lenders have applied a limit where no more than 20 per cent of new investor loans in any quarter can be written to borrowers with a debt-to-income ratio of six times or more. The limit applies to the combined debt of the borrower, including investment and owner-occupied loans, and is measured against gross income. Lenders assess your capacity to service the investment loan at a rate at least 3.0 percentage points above the loan product rate, regardless of whether you choose variable or fixed.
If you fix at 5.39 per cent, the lender will test serviceability at 8.39 per cent or higher. Rental income is included in serviceability, typically shaded by 20 per cent to account for vacancy and management costs. The DTI limit does not prevent you from borrowing, but it does mean that if your total debt is already high relative to income, some lenders may decline the application or require a larger deposit. This is particularly relevant for business owners whose income is variable or where trust distributions and company dividends require additional documentation.
Interest-Only Fixed Terms and the Five-Year Rule
Investor loans are commonly structured as interest-only to maximise tax deductions and preserve cashflow. You can fix the rate on an interest-only loan for any term up to five years. However, where the interest-only period exceeds five years or is not specified, and the LVR exceeds 80 per cent, the loan is classified as non-standard under bank capital rules and attracts higher risk weighting and pricing.
Most lenders will approve interest-only terms of up to five years at a time and allow you to request an extension at the end of that period, subject to serviceability. If you fix for three years on an interest-only basis, you will need to decide before the fixed term expires whether to refix as interest-only, switch to principal-and-interest, or refinance. An investor with an interest-only investment loan on a Sutherland Shire property might fix for three years, then extend interest-only for another two years on a variable rate, giving seven years of interest-only repayments while retaining flexibility to sell or refinance in years five to seven without break costs.
Split Loans and How to Allocate Fixed and Variable Portions
A split loan divides your borrowing into two or more portions, each with its own rate type, term and features. A common structure is 50 per cent fixed and 50 per cent variable, though any split is possible. The variable portion can be linked to an offset account, accept unlimited extra repayments, and be redrawn or refinanced without penalty. The fixed portion provides rate certainty and is insulated from rate rises.
An investor purchasing near Gymea might split $500,000 as $300,000 fixed at 5.19 per cent for three years and $200,000 variable at 6.10 per cent with offset. Business income flows into the offset account, reducing interest on the variable portion. Rental income services the fixed portion. If rates fall, the investor can refinance the fixed portion at maturity without penalty and leave the variable portion untouched. If rates rise, the fixed portion remains unaffected and the variable portion can be partially offset by increasing the balance in the offset account. Splitting also reduces break cost exposure, as only the fixed portion is locked.
Refinancing Out of a Fixed Rate Investment Loan Before Expiry
Refinancing a fixed rate loan before the term ends triggers break costs unless market rates have risen since you fixed. The decision to refinance early is usually driven by a material rate saving elsewhere, a need to access equity for another investment, or a change in loan structure such as moving from interest-only to principal-and-interest. You should request a break cost estimate from your current lender and compare it to the net benefit of the new loan over the remaining fixed term and beyond.
If your current fixed rate is 5.79 per cent with 18 months remaining and a new lender offers 5.29 per cent with better features, the break cost may be $8,000, the interest saving over 18 months may be $4,500, and the ongoing saving after the fixed term ends may be $3,000 per year. The refinance makes sense if you plan to hold the property for several more years. If you intend to sell within 18 months, paying $8,000 to save $4,500 does not. Some brokers will negotiate with the new lender to contribute toward or rebate break costs as part of the refinance, particularly on larger loans.
How Legislative Changes from Mid-2026 Affect Investment Loan Strategy
From the 2027-28 income year, losses on established investment properties purchased after May 2026 can only be offset against income from other residential properties, not against salary or business income. Properties purchased before that date, and newly constructed properties purchased after that date, retain full negative gearing. Investors who fixed an investment loan in late 2025 or early 2026 on an established property acquired before the cut-off are unaffected. Those purchasing established properties in 2027 onward will need to plan for deferred loss deductions and may prefer shorter fixed terms or variable rates to retain flexibility if the investment no longer suits their tax position.
Capital gains on investment properties sold after July 2027 are taxed under a new cost base indexation model for gains accruing from that date, replacing the 50 per cent discount on the post-July 2027 portion. The fixed rate term you choose does not directly change the tax treatment, but investors expecting to sell within three to five years may prefer variable or shorter fixed terms to avoid break costs if sale timing shifts.
Call one of our team or book an appointment at a time that works for you. Artisan Finance works with business owners across Sutherland Shire and Australia-wide to structure investment property finance that aligns with your business cashflow, tax position, and growth plans. Whether you are fixing for the first time, managing a fixed rate expiry, or weighing up a refinance, we will walk you through the numbers and the options without the jargon.
Frequently Asked Questions
What is the most common fixed rate term for investment loans?
Three-year fixed terms are the most commonly chosen by investors. They balance rate certainty with flexibility and typically carry lower rates than five-year fixes while avoiding the frequent rollover of one-year terms.
Can I make extra repayments on a fixed rate investment loan?
Most lenders allow extra repayments up to a capped amount each year, often $10,000 to $20,000, without penalty. Repayments above that cap may trigger break costs if market rates have fallen since you fixed.
What happens if I sell an investment property during a fixed rate term?
You will need to discharge the loan, and the lender will calculate any break cost based on the interest rate differential and time remaining. If rates have risen since you fixed, the break cost is usually zero.
Should I fix the entire investment loan or split it?
Splitting the loan into fixed and variable portions gives you rate certainty on part of the debt while retaining flexibility and offset access on the rest. A 50-50 or 60-40 split is common among investors who want both stability and liquidity.
Can I refix an investment loan before the current fixed term ends?
Some lenders allow you to lock in a new fixed rate up to 90 days before expiry without penalty. Refixing earlier than that may require breaking the existing term and paying any applicable break cost.
