Beginner's Guide to Fixed Rate Investment Loans

A fixed rate investment loan locks in your interest rate for a set period, so your repayments stay the same while the fix lasts. For a Bundoora investor, that can make budgeting for a rental property more predictable. It also limits how much you can change the loan during that time.

What Is a Fixed Rate Investment Loan?

A fixed rate investment loan holds your interest rate at one level for an agreed period, then moves to the lender's rate when the fixed term ends. A variable rate moves up or down with the lender's decisions, so repayments can change.

The main trade-off is flexibility. Some lenders limit extra repayments, offset accounts or redraw on fixed portions, and leaving a fixed loan early may involve break costs. Before you commit, ask the lender what it would cost to exit early and which features apply to the fixed portion. Our investment loans page explains the wider range of structures we can compare for you.

Why Do Some Bundoora Investors Choose to Fix?

Investors usually fix to know their holding costs in advance, especially when rent is the main source of repayments. Bundoora is home to La Trobe University's Bundoora campus. A fixed rate lets you plan around the rent you expect rather than around rate movements.

The cost of that certainty is that you will not benefit if variable rates fall during the fixed term. If you need to sell, refinance or restructure early, break costs could apply. A fixed rate suits an investor who values predictability over flexibility.

Fixed Rate Investment Loan Repayments: Interest Only or Principal and Interest?

Interest-only repayments are lower in the early years, but you do not reduce the loan balance. Principal and interest repayments cost more each month and gradually pay down the debt.

Consider a Bundoora investor who borrows $500,000 for a rental. This example uses an illustrative rate of 6.75% p.a. over a 30-year term, and it assumes the rate stays the same throughout to keep the comparison clear. In practice, a fixed rate usually ends before the loan term does.

• Interest only: about $2,812 a month.
• Principal and interest: about $3,243 a month.

The investor chooses five years of interest only to ease cash flow while the rental is established. They also plan for what comes next. After the interest-only period, repayments are calculated over the remaining 25 years, which comes to about $3,455 a month at the same illustrative rate. That is roughly $640 a month more than they paid during the interest-only years. Because they budgeted for the step-up from day one, it does not come as a surprise. They still owe the full $500,000 at that point, which is the cost of choosing interest only.

You can test your own numbers with our mortgage repayment calculator.

How Much Can You Borrow for an Investment Property?

Your borrowing power depends on your income, existing debts, living expenses and the lender's policy. Choosing interest only does not increase it.

Banks must test your ability to repay at a rate at least 3.0 percentage points above the loan's rate. For interest-only loans, APRA expects lenders to assess repayments as if principal and interest applied over the remaining term after the interest-only period. That is why an interest-only loan can produce a lower maximum loan size than a principal and interest loan.

Lenders also count only part of your expected rent. APRA's guidance is that prudent policies count no more than 80% of expected rent, to allow for periods without a tenant. A lender may also place less weight on a rental appraisal than on actual rent received. Our borrowing capacity page shows what influences the figure.

Tax Considerations for Fixed Rate Investment Loans

Interest on money borrowed to buy or hold a rental property is generally deductible to the extent the property is rented or held to produce income. Only the interest part of a repayment is deductible, not the principal.

The rules on negative gearing are changing, so the date you buy matters. Losses on residential properties held at 7:30pm AEST on 12 May 2026 continue to be deductible against other income, as do losses on eligible new builds. From the 2027-28 income year, net rental losses on established residential properties bought after that time can only be used against other residential property income. Properties bought between that time and 30 June 2027 can be negatively geared under the current rules until 30 June 2027 only. Capital gains tax rules for gains accruing from 1 July 2027 are also changing. These changes do not alter whether interest is deductible, but they affect how a rental loss can be used. Speak with your accountant about how this applies to your situation.

What Happens When Your Fixed Rate Ends?

When a fixed term ends, the loan usually moves to the lender's variable rate unless you act. That is a good time to review your options, including whether to fix again, move to a variable rate or refinance.

Start the review a few months before the fixed term ends, so you have time to compare. Our fixed rate expiry and refinancing pages explain the process. Refinancing can involve costs such as discharge or valuation fees, so those should be weighed against any saving.

Questions to Ask Before You Fix

Before you fix, ask how long the fixed period runs and what happens to the loan when it ends. Ask whether extra repayments or an offset account are allowed on the fixed portion, and whether splitting the loan between fixed and variable is possible. Ask what exiting early would cost, too.

A split loan can give you some certainty and some flexibility. Its trade-off is that the fixed portion is still subject to the fixed rate's limits. Lenders set these terms individually, which is where a broker who can compare lenders is useful. If you are local, our Bundoora mortgage broker page has the details.

If you are weighing up a fixed rate for your next property, call one of our team or book an appointment at a time that works for you. We will compare options from lenders across Australia and talk through the trade-offs with you.

Frequently Asked Questions