Top tips to lock fixed terms on investment loans

Matching Fixed Terms to Your Investment Strategy

The fixed rate term you select should reflect how long you intend to hold the property and whether you expect to refinance, sell or restructure before the term ends. A three-year fixed rate might suit an investor planning to reassess their portfolio once new tax rules take effect in mid-2027, while a five-year term could appeal to someone building long-term passive income with no intention to touch the loan structure.

Consider an investor in Doncaster East who purchased an established townhouse in late 2025 and locked a portion of the borrowing on a three-year fixed rate at 5.89 per cent. The property was acquired before the May 2026 announcement, so negative gearing remains available under existing rules. The investor chose three years because they wanted certainty through the transition period ending 30 June 2027, with the option to reassess once the new capital gains and negative gearing rules were fully operational. Locking the full loan amount on a five-year term would have extended their commitment well beyond the point where they might want to adjust their strategy or access equity for a second purchase.

Fixed terms typically range from one to five years, though some lenders offer six or seven-year products. Shorter terms expose you to rate movements sooner but give you more flexibility to refinance or restructure without facing break costs. Longer terms provide extended certainty but reduce your ability to respond to regulatory or market shifts without cost.

How Fixed Rate Break Costs Are Calculated

Break costs arise when you exit a fixed rate loan before the term expires. The lender calculates the economic loss by comparing the fixed rate you agreed to pay with the wholesale rate they can now earn by redeploying that capital. If wholesale rates have fallen since you fixed, the lender faces a funding shortfall and passes that cost to you.

The formula involves the difference between your fixed rate and the current wholesale rate for the remaining term, multiplied by your outstanding loan balance and the time left on the fixed period. A Doncaster investor who locked $600,000 on a five-year fixed rate at 6.10 per cent in early 2025 and wanted to refinance 18 months later, when wholesale rates had dropped to 5.40 per cent, could face break costs in the range of $20,000 to $30,000. The exact figure depends on the lender's funding structure and how they discount the loss over the remaining term.

Break costs are not always charged. If wholesale rates have risen since you fixed, the lender may waive the fee or even apply a discount to your exit. In a rising rate environment, exiting a fixed term early can sometimes be cost-neutral or advantageous. The challenge is that you cannot predict rate movements when you lock the term, so the decision to fix should assume you will hold the loan for the full period.

Splitting Between Fixed and Variable for Investment Properties

Splitting your investment loan between fixed and variable portions lets you manage cash flow risk without locking the entire amount. A common structure is 50 per cent fixed and 50 per cent variable, though the split can be tailored to suit your income stability, rental yield and anticipated portfolio activity.

The variable portion gives you flexibility to make extra repayments, redraw funds or pay down the loan without restriction. Most lenders allow unlimited additional payments on the variable split, which can be useful if you receive a bonus, sell another asset or want to reduce debt quickly. The fixed rate portion provides certainty over repayments and interest costs, which helps when calculating tax deductions and forecasting cash flow for negatively geared properties.

An investor holding a Westfield Shoppingtown Doncaster precinct apartment might split a $500,000 loan into $250,000 fixed at 5.95 per cent for four years and $250,000 variable at 6.45 per cent. Rental income covers the fixed portion with a predictable shortfall, while the variable portion can absorb lump sum payments from other income sources. If the investor decides to sell within the four-year window, only the fixed portion would attract break costs, and those costs apply to half the original loan balance rather than the full amount.

Splitting also reduces your exposure to rate movements in either direction. If variable rates rise, the fixed portion shields part of your repayment. If rates fall, the variable portion benefits immediately and you avoid being locked into an above-market rate across the full loan.

Aligning Fixed Terms with Negative Gearing Rule Changes

The transition to quarantined rental losses from 1 July 2027 affects how some investors think about fixed terms. Properties acquired before 7:30pm AEST on 12 May 2026 retain access to full negative gearing, which means interest deductions continue to offset wage and salary income. Properties acquired after that date, unless they qualify as eligible new builds, will have rental losses quarantined from mid-2027 onward.

If you purchased an established investment property in Doncaster between May 2026 and June 2027, you have a transitional window where existing negative gearing rules apply until 30 June 2027. Locking a fixed term that expires after July 2027 means your repayments remain predictable, but the tax benefit changes once quarantining begins. Some investors in this position chose shorter fixed terms that end before or shortly after the transition date, giving them the option to reassess whether to hold, sell or refinance once the new tax treatment is in place.

For grandfathered properties acquired before May 2026, the choice of fixed term is less influenced by tax rule changes and more by interest rate outlook and portfolio plans. A longer fixed term on a grandfathered property locks in both the repayment and the full negative gearing benefit, though you remain exposed to break costs if you sell or refinance early.

Interest-Only Fixed Terms and Cash Flow Planning

Most lenders allow you to fix an investment loan on an interest-only basis, though the interest-only period and the fixed rate term do not always align. A lender might approve five years interest-only but only offer a fixed rate for three years, which means you will revert to a variable rate for the final two years of the interest-only period unless you refinance.

Interest-only repayments reduce monthly cash outflow, which can be relevant for negatively geared properties where rental income does not cover the full cost of holding the asset. Fixing the rate on an interest-only loan gives you certainty over the interest component, which is fully deductible, and avoids the risk of rate rises during the fixed period pushing your cash flow further into the red.

A Doncaster investor with a $550,000 loan at 6.00 per cent fixed interest-only would pay around $2,750 per month. The same loan on principal and interest at the same rate would cost approximately $3,300 per month. The $550 difference might be absorbed by rental income or salary, depending on the property's yield and the investor's tax position. Once the interest-only period expires, repayments step up to principal and interest, which increases the monthly cost and may require refinancing or restructuring if cash flow is constrained.

Interest-only terms on investment loans are typically capped at five years, with some lenders offering extensions on application. If your fixed term and interest-only period both expire at the same time, you face two changes simultaneously: a move to variable rates and a move to principal and interest repayments. Staggering these transitions by choosing a shorter fixed term or negotiating a longer interest-only period can reduce the repayment shock.

Rate Discounts and Fixed Term Selection

Lenders adjust the size of the rate discount based on the fixed term you select, your loan to value ratio and the strength of your overall application. A two-year fixed rate might carry a smaller discount than a three or four-year term, reflecting the lender's funding cost and competitive positioning at different points on the yield curve.

Investor loans generally receive a smaller discount than owner-occupied lending, and the gap has widened under APRA's debt-to-income caps introduced in February 2026. An investor with a 20 per cent deposit and strong serviceability might receive a discount of 0.30 to 0.50 percentage points off the lender's published fixed rates, while an investor with a 10 per cent deposit and a debt-to-income ratio above 5.5 might see minimal or no discretionary discount.

Rate discounts are not automatically applied. Your broker negotiates the discount with the lender based on your deposit size, the loan amount, your income stability and whether you are consolidating other facilities. Fixing a larger portion of the loan or committing to a longer term can sometimes unlock a deeper discount, though the benefit must be weighed against the reduced flexibility and potential break costs.

Refinancing During or After the Fixed Term

Refinancing an investment property while the fixed term is still active will usually trigger break costs unless wholesale rates have moved in your favour. Refinancing once the fixed term expires avoids those costs and lets you reassess your loan structure, interest rate and lender without penalty.

Many investors plan to refinance at the end of the fixed term to access equity for a second purchase, consolidate debt or move to a lender offering lower ongoing variable rates. If your fixed term ends in a rising rate environment, refinancing to a new fixed rate can lock in certainty for another cycle. If rates have fallen, moving to a variable rate or a shorter fixed term might deliver lower repayments without the commitment of a long lock-in period.

Timing the end of your fixed term to coincide with a planned portfolio decision reduces the risk of being forced to break the loan early. An investor planning to purchase a second property in late 2028 might choose a two or three-year fixed term starting in early 2026, allowing the loan to revert to variable or be refinanced around the time they need to access equity or restructure their borrowing.

Call one of our team or book an appointment at a time that works for you to discuss which fixed term aligns with your investment timeline and tax position.

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