Beginner's guide to Fixed, Variable, and Split Loans

Which Rate Structure Suits an Investment Loan?

Variable rates give you flexibility and offset account access, fixed rates lock in repayments for a set period, and split loans combine both.

The choice depends on whether you value certainty over the next few years or prefer ongoing access to features like redraw and offset. For property investors in Perth, the decision also depends on whether you expect rates to rise or fall, how much rental income you can rely on, and whether you want to make lump sum repayments from time to time.

Since 1 July 2027, negative gearing rules have changed for residential investment properties purchased after 7:30pm AEST on 12 May 2026. If you bought a property after that date that is not a qualifying new build, your net rental losses can only be offset against other residential rental income or carried forward. They cannot be offset against your salary or wages. Properties held before that date continue under the previous rules. This shift makes cash flow planning more important, and your rate structure plays a role in managing that.

How Variable Rate Investment Loans Work

A variable rate moves up or down with market conditions, which means your repayments can change.

Most variable rate investment loans come with an offset account, redraw, and the ability to make extra repayments without penalty. If you hold the loan in interest-only mode, the offset account can still reduce the interest charged each month based on the balance you keep in it. That can be useful if you are managing cash flow across multiple properties or want to keep funds accessible for renovations or future deposits.

Consider a property investor who bought a unit in Applecross before the 12 May 2026 cut-off and structured the loan as variable with an offset account. They continue to negatively gear the property under the existing rules, meaning rental losses reduce their taxable income. The offset account holds surplus cash from their salary, reducing the interest charged on the loan each month without locking that cash away. When they decided to renovate the bathroom, they withdrew the funds directly from the offset account without needing to apply for a redraw or top-up.

Variable rates typically sit below fixed rates when the market expects rate cuts ahead, and above fixed rates when the market expects increases. Lenders adjust variable rates in response to Reserve Bank cash rate changes and their own funding costs, so you will not know your exact repayment six months from now.

Fixed Rate Investment Loans and Break Costs

A fixed rate holds your interest rate steady for one to five years, regardless of what happens in the broader market.

You lose access to offset accounts and redraw on most fixed rate products, and you are typically limited in how much extra you can repay each year without triggering break costs. If you repay the loan early, refinance, or sell the property during the fixed term, the lender may charge a break cost to recover the difference between the rate you locked in and the rate they can now earn by lending that money elsewhere. Break costs can run into the thousands, depending on how far rates have moved since you fixed.

Fixed rates suit investors who want certainty over repayments, particularly if they are holding a property with minimal rental income or expect rates to climb. If you are relying on negative gearing under the grandfathered rules and want to forecast your after-tax position accurately, a fixed rate removes one variable. However, if you plan to sell within a few years or want to access equity for another purchase, the lack of flexibility can become expensive.

In our experience, investors who fix during a rate rise cycle and then want to refinance when rates start falling often face break costs that wipe out any benefit they were chasing. The timing matters, and locking in a rate makes sense only if you are confident you will hold the loan through the fixed period.

Split Loans for Investment Property

A split loan divides your borrowing between fixed and variable portions, letting you lock in part of your repayment while keeping flexibility on the rest.

You might fix 50 per cent of the loan for three years and leave the other 50 per cent variable, or choose a 70/30 split depending on your tolerance for rate movements. The variable portion keeps access to offset and redraw features, while the fixed portion provides a floor under your repayments. If rates rise, the fixed portion shields you. If rates fall, the variable portion benefits immediately.

Split loans require more administration because you are managing two loan accounts, each with its own interest rate, repayment schedule, and set of features. You can usually adjust the split at the end of a fixed term, but during the term you are committed to the structure you chose. Some lenders allow multiple splits, so you could fix portions at different times to stagger your exposure, though this adds complexity without always adding value.

For investors managing multiple properties or planning to buy again within a few years, the split structure offers a middle path. You are not fully exposed to rate rises, but you are not locked out of offset benefits or early repayment either. The trade-off is that you will not get the lowest advertised rate on either portion, and you will be juggling two accounts instead of one.

Interest-Only Repayments on Investment Loans

Interest-only repayments let you pay only the interest charged each month, without reducing the loan balance, for a set period usually up to five years.

This keeps your monthly outgoings lower, which can help if the property is not generating enough rental income to cover a principal-and-interest repayment. Many investors choose interest-only to maximise their tax deductions, because the entire interest component remains deductible when the property is rented out, and paying down principal does not create a deduction.

Under the current negative gearing quarantine for properties purchased after 12 May 2026 that are not eligible new builds, rental losses can only offset other residential rental income or be carried forward. If you have no other rental income, those losses sit unused until you sell the property or earn rental income elsewhere. That makes cash flow management more important than it used to be, and interest-only can reduce the monthly shortfall even if the tax benefit is delayed.

When the interest-only period ends, the loan reverts to principal and interest, and your repayment will jump because you are now paying down the balance over the remaining loan term. If you have a 30-year loan and spent the first five years on interest-only, the principal portion will be calculated over 25 years, not 30. You can often reapply for another interest-only period if your circumstances still support it, but lenders assess rental income, your deposit position, and your overall borrowing each time.

Rental Income and Serviceability for Investment Loans

Lenders assess investment loan applications using rental income, but they do not count the full amount.

Most lenders apply a shading factor, accepting 70 to 80 per cent of the rental income when calculating serviceability. This accounts for vacancy periods, maintenance costs, and the possibility that the property sits empty between tenants. If the property is returning rental income at the time of application, lenders will ask for a lease agreement or rental appraisal. If it is not yet tenanted, they will request a rental appraisal from a licensed property manager.

APRA's serviceability buffer requires lenders to assess your ability to meet repayments at a rate 3 percentage points above the product rate. If you are applying for a variable rate loan at 6.2 per cent, the lender will test serviceability at 9.2 per cent. For interest-only loans, some lenders also test on a principal-and-interest basis to confirm you can meet the higher repayment when the interest-only period ends.

From 1 February 2026, the debt-to-income cap allows lenders to fund up to 20 per cent of new investor loans at a DTI of 6 times or greater. If your total borrowing across all loans exceeds six times your gross annual income, you may still be approved, but you will fall within that 20 per cent allocation, and not all lenders have capacity in that bucket at any given time. Finance for newly erected dwellings and new dwelling construction is exempt from the DTI cap, which can open up more borrowing capacity if you are purchasing an eligible new build.

Offset Accounts and Deductibility

An offset account linked to your investment loan reduces the interest you are charged, but you need to manage it carefully to protect your deductions.

If you deposit rental income into the offset account, that is fine. If you deposit your salary or other non-investment income and then withdraw it for private use, that is also fine. The problem arises when you withdraw money from the offset account to pay for private expenses and then deposit it back later, or when you mix private and investment funds in the same account without clear separation.

Interest on borrowings is only deductible to the extent the borrowing is used to produce assessable income. If you redraw from your investment loan to pay for a holiday, the interest on that redrawn portion is not deductible, even though the loan is secured against an investment property. The same principle applies if you use an offset account in a way that blurs the line between investment and private use. Most lenders and accountants recommend keeping the offset account exclusively for investment-related income and expenses, and using a separate transaction account for personal spending.

This becomes more relevant if you are refinancing or restructuring loans, because any new borrowing needs to be clearly linked to an income-producing purpose to remain deductible. If you are considering an investment loan refinance and plan to release equity for another purchase, the structure and purpose of each loan portion needs to be documented at the time you draw it down.

Lenders Mortgage Insurance and Loan-to-Value Ratio

Lenders Mortgage Insurance is charged when your deposit is less than 20 per cent of the property value, and it protects the lender if you default.

For investment loans, LMI premiums are typically higher than for owner-occupied loans at the same loan-to-value ratio. Some lenders cap investment lending at 90 per cent LVR even with LMI, while others will lend up to 95 per cent in limited circumstances. LMI is a one-off cost, usually added to the loan balance, and it is not refundable if you refinance or repay early.

If you are buying a property in an area with a high vacancy rate or a unit in a building with known defects, some lenders will reduce the maximum LVR they are willing to offer, even if you are prepared to pay LMI. Location, property type, and building age all influence how far a lender will go, and those limits are not always visible until you submit a formal application.

Releasing equity from an existing property to fund a deposit on a second investment property typically requires you to stay within an 80 per cent LVR across all properties, or pay LMI on the increased borrowing. If you are leveraging equity and buying another property at 90 per cent LVR, the combined LMI cost can be significant, and that cost is not deductible because it relates to the borrowing, not the property itself. You will need to factor that into your cash flow and long-term return.

When to Speak to a Mortgage Broker About Investment Loan Options

If you are deciding between fixed, variable, or split, or working out whether interest-only makes sense under the current tax rules, talking through the numbers with someone who knows the lending landscape can save you time and money. We work with lenders across Australia and can show you how different rate structures and features affect your repayments, your borrowing capacity, and your access to offset and redraw.

Whether you are buying your first investment property in Perth, refinancing an existing loan, or building a portfolio across multiple suburbs, we will help you match the loan structure to what you are actually trying to achieve. Call one of our team or book an appointment at a time that works for you.

Frequently Asked Questions