Top tips to lock in fixed rates on investment loans

Fixed rate investment loans offer certainty over repayments and interest deductions, but the choice between fixed and variable structures depends on your property strategy and how the upcoming tax changes affect your situation.

Malvern's established apartment and townhouse market has attracted investors looking for rental yield close to Glenferrie Road retail and Malvern station. The suburb's proximity to the CBD and Monash employment corridor means rental demand remains consistent, but established dwellings purchased now face negative gearing restrictions from 1 July 2027. That date shapes how you structure your loan and whether fixing the rate makes sense for your borrowing.

Fixed rates quarantine interest costs under the new rules

From 1 July 2027, net rental losses on established residential properties purchased after 7:30pm AEST on 12 May 2026 can only be offset against residential rental income or carried forward. They cannot reduce your taxable salary or business income. Interest on a fixed rate loan is a rental expense, so if your rental income is less than your interest and other holding costs, that loss is quarantined.

If you bought an apartment in Malvern under contract before that cut-off time, you retain full negative gearing. Interest remains deductible against all income until you sell. The same applies if you settle between 12 May 2026 and 30 June 2027, although only until the end of June 2027.

Consider an investor who settled on a two-bedroom apartment in Malvern in October 2026 with an interest-only investment loan at a variable rate. Until 30 June 2027, the rental loss offsets their salary. From 1 July 2027, that loss is quarantined. If they had fixed the rate for three years at settlement, the interest cost is locked, but the deductibility changes partway through the fixed term. The certainty over repayments remains, but the after-tax cost rises once quarantining begins.

Interest-only and fixed terms align with holding strategy

Most lenders allow interest-only periods of up to five years on investment loans, renewable subject to serviceability and loan-to-value ratio at review. Fixing the rate during an interest-only period means your monthly repayment does not change, which helps with cashflow forecasting when rental losses are quarantined and cannot offset other income.

A fixed rate on an interest-only loan also means the interest component you declare each year is predictable. If you are holding the property for capital growth rather than paying down the loan, the interest-only structure maximises your deduction, and fixing the rate removes the risk of a mid-term rate rise increasing that cost. Once the interest-only period expires, the loan typically reverts to principal and interest unless you apply to extend.

Lenders assess investment loan serviceability using the higher of the loan rate plus a three percentage point buffer or a floor rate, and they apply the debt-to-income cap separately to investor lending. Malvern properties often attract higher rental income relative to regional markets, but vacancy rates and body corporate fees for apartments reduce net rental income. A fixed rate does not change the serviceability test, but it does confirm the interest cost you will pay for the fixed term.

Refinancing and break costs during a fixed term

If you need to refinance or sell the property before the fixed term ends, most lenders charge a break cost. The cost reflects the economic loss to the lender from the fixed rate contract ending early, and it can be significant if market rates have fallen since you locked in.

Break costs are calculated using the difference between your fixed rate and the wholesale rate the lender can now earn on the remaining term, multiplied by the outstanding loan amount. If variable rates are lower than your fixed rate when you want to refinance, you will pay a break cost. If variable rates have risen above your fixed rate, the break cost is usually zero or minimal.

For investors with multiple properties, a split loan structure can reduce this risk. You might fix a portion of the loan and leave the remainder on a variable rate, allowing you to make extra repayments or refinance the variable portion without penalty. That flexibility is useful if you plan to access equity for another purchase or if you want to repay the loan faster.

Fixed rates and portfolio growth through equity release

Malvern's median dwelling values have risen over the past decade, and established owners often hold significant equity. If you are using a fixed rate loan on one property and plan to borrow against equity in another, the timing of the fixed rate expiry matters. You cannot redraw or offset against a fixed loan in most cases, so any surplus funds should stay in an offset account linked to a variable loan or held outside the loan structure.

Lenders calculate equity release based on the combined loan-to-value ratio across your portfolio. If you fix the rate on a Malvern investment property and later want to leverage equity for a second purchase, the fixed loan remains in place, but the new borrowing is assessed using current serviceability rules, including the debt-to-income cap and the rental income from both properties.

The negative gearing changes do not prevent you from borrowing or releasing equity, but they do reduce the after-tax benefit of holding established dwellings purchased after the cut-off. That reduction can affect serviceability for the next loan if your net rental position weakens. A fixed rate protects you from rising interest costs on the existing loan, but it does not insulate the portfolio from the tax change.

Locking in the rate without locking out flexibility

Most fixed rate products allow limited extra repayments each year, typically between ten and twenty thousand dollars, without penalty. On an interest-only investment loan, extra repayments sit in a redraw facility if the product allows it, or they reduce the principal if redraw is not available. Check whether your lender permits redraw on a fixed investment loan, because some do not.

If you expect a bonus, tax refund, or other lump sum during the fixed term, confirm the extra repayment limit and whether you can access those funds again. On a principal and interest loan, extra repayments reduce the principal and shorten the loan term, which increases your equity but reduces the interest deduction. On an interest-only loan with redraw, the principal does not reduce unless you choose to repay it, and the interest deduction remains based on the full loan amount.

Fixed rates in mid-2026 are higher than variable rates for most lenders, reflecting the market's expectation of future rate settings. If you fix now, you pay a premium for certainty. If you stay variable, you retain flexibility but accept the risk of rate rises. For Malvern investors holding established dwellings under the grandfathering rules, the tax treatment does not change, so the fixed versus variable decision is purely about interest cost and repayment certainty. For those purchasing after the cut-off, the tax treatment is already less favourable, and fixing the rate at least removes one variable from the cashflow equation.

Call one of our team or book an appointment at a time that works for you to review your investment loan options and structure a fixed rate that suits your holding period and portfolio plans.

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