Common Mistakes With Fixed Rate Investment Loans

A fixed rate investment loan gives you certain repayments, but it also limits what you can do with the loan. Some borrowers with steady incomes value that certainty. The mistakes tend to come from the trade-offs.

This article covers the main traps with fixing an investment loan, and how to check a loan against your plans before you commit.

What Is a Fixed Rate Investment Loan?

A fixed rate investment loan locks your interest rate for an agreed period, so your repayments stay the same during that time. When the period ends, the loan moves to a new rate unless you choose another option.

The main benefit is predictable cash flow. You know what the loan costs each month, which helps when you are budgeting around rent, rates, insurance and property management fees. The main trade-off is flexibility. Depending on the lender, a fixed loan may limit extra repayments, redraw or offset accounts, and leaving early can trigger break costs. Check these terms in the product disclosure before you apply.

Mistake 1: Fixing the Whole Loan Without Checking the Features

Fixing the entire loan can leave you without features you later want. Many lenders restrict offset accounts, extra repayments or redraw on fixed portions, so the terms vary from lender to lender.

A split loan is one way to balance this. Part of the loan is fixed for certainty and part stays variable for flexibility. The cost is that the variable portion can rise, and a split structure can mean managing two balances. Ask your broker whether the lender allows extra repayments or an offset on each portion.

Mistake 2: Ignoring Break Costs Until You Need to Sell

Break costs can apply if you repay or refinance a fixed loan before the term ends. The amount depends on the lender's method, the time left and how rates have moved since you fixed.

This matters for investors because plans change. You might sell the property, refinance or release equity. Consider a Hobart-based public servant who fixes an investment loan, then takes a job interstate and decides to sell a few months into the term. If rates have dropped since they fixed, the lender may charge a break cost. The solution is to ask for the lender's break cost method in writing before signing, and to fix only the portion of the loan they are confident they will hold. In this scenario, a split loan with a smaller fixed portion limits the exposure if they sell early. The outcome is a plan where the possible cost of leaving is known upfront and kept to a smaller part of the debt.

Mistake 3: Forgetting What Happens When the Fixed Term Ends

When a fixed term ends, your loan usually reverts to a variable rate set by the lender, which may be higher or lower than what you were paying. That can change your repayments quickly.

Put the expiry date in your calendar and start reviewing options a few months ahead. Our page on fixed rate expiry explains your choices, and a loan health check can show whether you are paying more than you need to. If you decide to move lenders, investment loan refinancing is worth looking at, keeping in mind that refinancing can involve discharge and other fees.

Mistake 4: Choosing Interest Only Without Checking the Numbers

An interest-only period keeps repayments lower for a time, but it does not reduce the loan balance. It also does not increase how much you can borrow.

Under APRA's guidance, lenders assess interest-only loans on the principal and interest repayments over the remaining term after the interest-only period ends. That means a lender assesses a 30-year loan with a five-year interest-only period over 25 years of repayments.

As an illustration, using an example rate of 6.75% p.a., a $500,000 loan costs about $2,813 a month in interest only (500,000 x 6.75% / 12). Once principal and interest begins over a remaining 25 years at the same rate, the repayment is roughly $3,455 a month. That is an increase of about $640 a month. The trade-off is clear: you keep more cash early on, but the balance is the same when the higher repayments start. Our interest only loans page covers this in more detail.

Mistake 5: Assuming Tax Rules Work the Way They Used To

The interest on a loan used to buy a rental property is generally deductible while the property is rented or available for rent, but the principal part of a repayment is not. Whether a rental loss can offset your salary depends on when you bought the property and whether it is an established home or an eligible new build.

Properties held at 7:30pm AEST on 12 May 2026 keep full negative gearing. From the 2027-28 income year, net rental losses on established homes bought after that time can generally only be offset against residential property income. Changes to capital gains tax also start from 1 July 2027. These rules are detailed, so speak with your accountant before you buy. Nothing about tax outcomes is certain, and they depend on your circumstances.

Mistake 6: Borrowing Without Testing Your Capacity

Lenders test your ability to repay at a rate at least 3.0 percentage points above the loan rate, and they count only part of your expected rent. APRA's guidance says that prudent policy counts no more than 80 per cent of expected rental income.

That means the loan you want may not match what a lender will offer. Use the borrowing capacity calculator early, and if you are weighing up your first purchase, read about buying your first investment property. If your deposit is below 20 per cent, lenders mortgage insurance may apply, so ask whether any LMI waivers for public servants are available through lenders, since eligibility depends on the lender.

Call one of our team or book an appointment at a time that works for you, and we will test a fixed, variable or split structure against your plans before you commit.

Frequently Asked Questions