Fixed Rate Terms on Investment Loans: What You Need to Know
Fixed rate terms on investment loans typically range from one to five years, with most lenders offering one, two, three, and five-year options. The term you select determines how long your interest rate remains locked, which directly affects your ability to refinance, access equity, or respond to rate movements without incurring break costs.
For property investors in The Range, where established homes on elevated blocks often attract stable rental demand, the choice between a shorter or longer fixed term depends on your refinancing plans, portfolio growth timeline, and risk tolerance. A two-year fixed term offers protection against rate rises while preserving refinancing flexibility. A five-year term locks in certainty but restricts your ability to restructure without penalty.
How Fixed Rate Break Costs Are Calculated
Break costs apply when you exit a fixed rate loan early, whether through refinancing, selling the property, or making extra repayments beyond the allowed limit. Lenders calculate break costs based on the difference between your fixed rate and the current wholesale rate for the remaining term, multiplied by your outstanding loan balance.
Consider an investor who fixed a loan at 5.2% on a three-year term with $400,000 outstanding. If wholesale rates drop to 4.5% after 18 months and they refinance to access equity for a second purchase, the lender may charge break costs of $8,000 to $12,000. The calculation compensates the lender for the interest revenue lost over the remaining 18 months. This cost can erode the benefit of refinancing, particularly if the equity release or rate saving is modest.
Shorter Fixed Terms for Active Portfolio Growth
Investors planning to acquire additional properties within two to three years often select shorter fixed terms to avoid break costs when refinancing to release equity. A one or two-year fixed term provides short-term rate certainty while keeping refinancing options open as your portfolio expands.
In The Range, where median property values have remained relatively stable compared to coastal markets, investors often use equity from their first property to fund deposits on subsequent acquisitions. Locking in for five years can delay that second purchase if break costs make refinancing prohibitive. A two-year term allows you to secure a known repayment while maintaining the flexibility to restructure when the fixed period ends.
Longer Fixed Terms for Passive Income Strategies
A five-year fixed term suits investors focused on income rather than portfolio expansion, particularly those holding properties in areas with consistent rental yields and limited plans to refinance. Locking in for five years removes exposure to rate rises and simplifies cash flow forecasting, which is valuable for retirees or investors relying on rental income to cover living expenses.
The trade-off is reduced flexibility. If you need to access equity, sell the property, or refinance to consolidate debt, break costs can be substantial. Five-year terms work when your investment strategy is stable and you do not anticipate needing to restructure your lending within that period.
Split Rate Structures on Investment Loans
Some investors split their loan between fixed and variable portions, typically fixing 50% to 70% of the loan amount while leaving the remainder variable. The fixed portion protects against rate rises, while the variable portion allows extra repayments, offset account access, and penalty-free refinancing on that portion of the debt.
For an investment property loan of $500,000, fixing $350,000 for three years and leaving $150,000 variable gives you rate certainty on the majority of the debt while retaining flexibility to make lump sum repayments or redraw funds if needed. This structure is common among investors who want rate protection without sacrificing all access to loan features. If you are considering this approach alongside other lending structures, a loan health check can clarify how a split rate fits within your broader borrowing position.
Fixed Rate Terms and Interest-Only Periods
Most lenders allow interest-only repayments on investment loans for up to five years, and you can combine this with a fixed rate term. An interest-only period reduces your monthly repayment, which improves cash flow and can increase your borrowing capacity for additional properties.
If you fix a loan for three years on an interest-only basis, your repayment remains constant for that period. Once the fixed term ends, you can choose to revert to variable, refix, or switch to principal and interest repayments. The interest-only period and fixed term do not need to align, but coordinating them simplifies your refinancing timeline. Investors in The Range often use this structure to maximise tax deductions while keeping repayments predictable during the early years of ownership.
When to Avoid Fixing on an Investment Loan
Fixing is less suitable if you plan to sell the property, refinance to consolidate debt, or access equity within the fixed period. Variable rates offer full flexibility to make extra repayments, use offset accounts, and exit without penalty, which is valuable when your investment strategy or financial circumstances are likely to change.
If you are uncertain about your refinancing timeline or portfolio plans, a variable rate loan preserves your options. You can still switch to a fixed rate later if market conditions or your strategy shift, and most lenders allow partial fixes without refinancing the entire loan. For investors weighing their options across different loan structures, understanding your investment loan options before committing to a fixed term can prevent costly mistakes.
Reviewing Your Fixed Term Before It Expires
Most lenders notify you 30 to 90 days before your fixed term ends, at which point your loan reverts to the standard variable rate unless you refix or refinance. The standard variable rate is typically higher than discounted variable rates available to new borrowers, so reviewing your options before expiry is essential.
If rates have fallen since you fixed, refinancing to a new lender may deliver a lower rate and better loan features. If rates have risen, refixing with your current lender for another term may be appropriate, depending on your portfolio plans. Letting your loan roll to the standard variable rate without reviewing alternatives often results in higher repayments than necessary. If your fixed term is approaching expiry, a fixed rate expiry review ensures you transition to the most suitable rate and structure for your current circumstances.
Call one of our team or book an appointment at a time that works for you to discuss which fixed rate term aligns with your property investment strategy and refinancing timeline.
Frequently Asked Questions
What fixed rate terms are available on investment loans?
Most lenders offer fixed rate terms of one, two, three, and five years on investment loans. The term you choose determines how long your interest rate remains locked and affects your ability to refinance or access equity without incurring break costs.
Do I pay break costs if I refinance during a fixed rate term?
Yes, refinancing during a fixed rate term typically triggers break costs, which are calculated based on the difference between your fixed rate and current wholesale rates, multiplied by your remaining loan balance. These costs can be substantial if rates have fallen since you fixed.
Can I combine a fixed rate with interest-only repayments on an investment loan?
Yes, most lenders allow you to fix your rate while maintaining interest-only repayments for up to five years. This combination reduces your monthly repayment and provides rate certainty, which can improve cash flow and support portfolio growth.
Should I fix my investment loan for one year or five years?
A shorter term suits investors planning to refinance or acquire additional properties soon, as it minimises break costs. A longer term suits investors focused on income and stable cash flow, with no plans to restructure their lending within that period.
What happens when my fixed rate term ends?
When your fixed term ends, your loan reverts to the lender's standard variable rate unless you refix or refinance. Reviewing your options before expiry ensures you transition to a suitable rate rather than accepting a higher standard variable rate.
