Fixed rate investment loans give you certainty over repayments for a set period, usually one to five years.
That certainty matters more now than it did 12 months ago. New tax rules take effect from 1 July 2027 that change how rental losses can be used, and investors in Werribee are weighing up whether to buy before the cut-off or wait. A fixed rate won't change the tax outcome, but it does let you model your cashflow with confidence while those rules bed in.
How Fixed Rates Work on Investment Property Loans
You lock in an interest rate for a set term, and your repayments stay the same regardless of what the Reserve Bank does. The term you choose determines the rate you get. Shorter terms usually attract lower rates, longer terms cost a bit more because the lender is locking in their funding cost for longer.
Most lenders let you fix part of the loan and leave the rest variable, known as a split. Consider an investor who borrows to buy a three-bedroom townhouse near Werribee Plaza. They fix 60 per cent of the loan at a rate available today, and leave 40 per cent variable. If rates fall, the variable portion benefits. If rates rise, the fixed portion shields most of the repayment from the increase. The split also lets you make extra repayments against the variable portion without triggering break costs.
Why Werribee Investors Are Asking About Fixed Rates Now
Werribee's rental market has been shaped by affordability and proximity to the city. Median rents for houses have climbed as demand from families and essential workers has stayed solid, and the opening of Wyndham Village shopping precinct has added to the suburb's appeal for tenants. Investors are locking in properties now because stock under the current negative gearing rules is grandfathered, and a fixed rate gives them a known repayment while they assess whether the property will still perform under the new quarantine rules.
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The 1 July 2027 effective date is still 12 months away, but properties purchased now remain eligible for full negative gearing. A fixed rate doesn't change that eligibility, but it does remove rate risk from your decision. If you're buying in a suburb where cashflow is already tight, that removal of one variable can make the difference between proceeding and walking away.
Fixed Rate Terms and What They Mean for Your Strategy
One-year fixed rates are typically the lowest, but you're back to variable within 12 months. A three-year term takes you to mid-2029, past the point when the new tax rules have bedded in and vacancy fee changes for foreign investors have cycled through. A five-year term locks you in until 2031, which can suit investors who plan to hold and don't want to think about rates again until the property is either positively geared or sold.
The longer the term, the more inflexible the loan becomes. Most fixed rate investment loans allow only small extra repayments before break costs apply. If you sell or refinance early, the lender calculates the cost of unwinding the fixed contract, and that cost can run into thousands of dollars depending on how far rates have moved since you locked in.
Interest-Only Repayments and How They Interact with Fixed Rates
Interest-only repayments reduce your monthly outgoing because you're not paying down the principal. That frees up cashflow for other investments or to cover holding costs while the property appreciates. You can fix an interest-only loan just as you would fix a principal-and-interest loan, and the rate is usually the same.
The interest-only period is typically capped at five years for investors, and some lenders will only offer it for the first three years. Once the interest-only term ends, the loan reverts to principal and interest, and your repayment jumps. If that reversion happens while you're still locked into a fixed rate, you don't get to renegotiate the rate, you just start paying principal on top of the fixed interest charge. Timing the fixed term and the interest-only term so they expire together gives you a clean break to reassess and refinance if needed.
How the New Negative Gearing Rules Change the Fixed Rate Calculation
From 1 July 2027, rental losses on residential properties bought after 7:30pm on 12 May 2026 can only be offset against other residential rental income or carried forward. They can't be used to reduce your tax on salary or other income unless the property qualifies as an eligible new build.
That changes the cashflow calculation. If you were relying on a tax refund each year to cover part of the shortfall between rent and repayments, that refund disappears for properties caught by the new rule. A fixed rate won't restore the tax benefit, but it does let you model the true out-of-pocket cost without guessing where rates will be in 12 or 24 months. The certainty matters more when the tax system is working against you, not for you.
Properties held before the 12 May 2026 cut-off are grandfathered and can continue to be negatively geared under the old rules. If you're buying one of those properties as a second-hand investment, the grandfathering does not transfer to you. The new rules apply based on when you acquire the property, not when it was first purchased.
What Happens If You Need to Break a Fixed Rate Early
Break costs are calculated based on the difference between the rate you locked in and the rate the lender can now lend that money out at for the remaining term. If you fixed at 6 per cent and rates have since fallen to 5 per cent, the lender has lost income and you wear the cost. If rates have risen, there's usually no break cost because the lender can re-lend at a higher rate.
Selling the property triggers a break cost calculation. So does switching to a different loan product, paying out the loan in full, or refinancing to another lender. Some lenders allow portability, which means you can take the fixed rate with you to a new property without breaking, but the new loan amount usually has to be equal to or greater than the amount being ported. That's rarely practical for investors selling one property to buy another unless the new purchase is more expensive.
Split Loans and How to Structure Them for Flexibility
A 50-50 split is common, but there's no rule. You might fix 70 per cent if you value certainty and can't afford a repayment increase, or fix just 30 per cent if you think rates are likely to fall but want some protection in case they don't. The variable portion remains fully flexible, so you can make extra repayments, redraw, and pay it off without penalty.
In our experience, investors with multiple properties often fix one loan and leave others variable so the portfolio as a whole has balance. That approach works when you're managing cashflow across several assets and don't want every loan locked into the same rate cycle. It also makes it simpler to refinance one property without unwinding the entire portfolio.
How Lenders Assess Fixed Rate Investment Loan Applications
Serviceability is tested at the actual fixed rate plus a buffer, currently three percentage points under APRA's prudential standard. That buffer applies whether the loan is fixed or variable, so fixing doesn't make it harder to borrow. Lenders also apply a debt-to-income cap, effective from 1 February 2026, which limits the share of new loans they can write above six times your gross income. That cap is applied separately to investor and owner-occupied lending, so your investment borrowing is assessed within its own bucket.
Rental income is included in serviceability, but most lenders only count 80 per cent of it to allow for vacancy and management costs. If you're buying in Werribee, where vacancy rates have historically been low due to strong tenant demand from families and workers in the nearby employment precincts, lenders still apply the 80 per cent shading regardless of local conditions.
When Variable Makes More Sense Than Fixed
If you plan to sell within two years, a variable rate avoids the risk of break costs. If you want to make large extra repayments or pay the loan off early using equity from another property, variable keeps that option open. And if you think rates are more likely to fall than rise over the next 12 months, staying variable lets you benefit from those cuts without being locked in.
Fixed rates suit investors who want to know exactly what they'll pay, who are buying in a rising rate environment, or who are managing cashflow carefully under the new tax rules and can't afford surprises. Variable suits investors who want flexibility, who are comfortable with rate movements, or who expect to exit or refinance before the fixed term would end.
Mortgage Run works with property investors across Werribee and the western growth corridor. We compare investment loan options from banks and lenders across Australia and structure the loan to suit your holding period and tax position, not just the rate on the day. Call one of our team or book an appointment at a time that works for you.
Frequently Asked Questions
Can I fix an interest-only investment loan?
Yes, you can fix an interest-only investment loan at the same rate as a principal-and-interest loan. The interest-only period is usually capped at five years, and once it ends, the loan reverts to principal and interest even if you're still in the fixed rate term.
What happens if I sell my investment property before the fixed term ends?
You'll trigger a break cost calculation. If rates have fallen since you fixed, the lender charges you the difference between your rate and the current rate for the remaining term. If rates have risen, there's usually no cost.
Do the new negative gearing rules from 2027 affect fixed rate loans?
The rules change how rental losses are used for tax, not how loans are structured. A fixed rate gives you certainty over repayments while the new tax rules bed in, but it doesn't restore the ability to offset losses against salary if your property is caught by the quarantine.
How much of my investment loan should I fix?
A 50-50 split is common, but you can fix more if you value certainty or less if you want flexibility. The variable portion lets you make extra repayments without break costs, so the right split depends on your cashflow needs and rate outlook.
Are fixed rates assessed differently for serviceability?
No, lenders test serviceability at the fixed rate plus a three percentage point buffer, the same as for variable loans. Fixing doesn't make it harder to borrow, and the debt-to-income cap applies separately to investor and owner-occupied loans.
