Smart ways to approach fixed rate investment loans

A fixed rate on an investment loan locks your interest cost for a set period while rental income and tax settings change around it.

That disconnect matters for ACT Government employees who rely on stable deductions and predictable repayments. The rental market shifts, vacancy periods happen, and tax rules are being rewritten for properties purchased after mid-2026. A fixed rate gives you one element you can control while the rest moves.

Why investor fixed rates differ from owner-occupier rates

Banks price investment loans higher than owner-occupier lending because the risk profile differs. A borrower will prioritise their own home over a rental property when finances tighten. That risk is baked into the rate, typically adding 0.30 to 0.60 percentage points to the cost.

Fixed investor rates sit higher again because the bank loses the ability to reprice if conditions change. You're paying for certainty, and the lender charges for the option value they're giving up. The margin varies depending on the loan to value ratio, whether the loan is interest only or principal and interest, and the term of the fixed period.

Consider a public servant who bought a unit in Belconnen as a second property. With an 80 per cent loan to value ratio on an interest only basis, the fixed rate offered was 0.45 percentage points higher than the variable investor rate at the time. That gap narrows if you're borrowing at 70 per cent or lower, and it widens past 85 per cent.

When a fixed rate makes sense for negative gearing

The deduction you claim depends on the interest you pay. If you fix at 6.20 per cent on a loan amount of $400,000, your annual interest cost is $24,800. That figure doesn't change for the fixed term, so you know exactly what you're claiming each year against your rental income and salary.

Under the current rules, if your property was held before 7:30pm AEST on 12 May 2026, you can offset that loss against your APS salary. For properties purchased after that date, losses are quarantined from 1 July 2027 unless the dwelling qualifies as an eligible new build. Fixing your rate before that date gives you certainty on the size of the deduction during the transition.

Rental income doesn't move in step with interest costs. If your tenant pays $480 per week and your interest bill is $24,800 a year, you're short around $200 each week before any other costs. That shortfall is partly offset by the tax benefit, but only if your rate and your income remain steady. A fixed rate removes one variable from that calculation.

Interest only versus principal and interest on a fixed term

Most property investors choose interest only repayments during the fixed period to maximise cash flow and the size of the tax deduction. You're not reducing the loan balance, so every dollar of repayment is deductible.

If you fix on a principal and interest basis, only the interest portion is claimable. The principal portion builds equity but doesn't reduce your tax. For an ACT Government employee on a marginal rate of 37 per cent, the difference is whether you're funding that principal reduction with pre-tax or post-tax income.

Interest only fixed terms are typically capped at five years, and some lenders will only offer three. After the fixed period ends, the loan usually reverts to principal and interest unless you negotiate a further interest only extension. That reversion can increase your repayment by 30 to 40 per cent depending on how much of the original term remains.

What happens when the fixed term ends

Your loan reverts to the lender's standard variable rate for investment lending unless you refinance or negotiate a new fixed term. The revert rate is almost always higher than the advertised variable rate offered to new customers, sometimes by 0.50 to 1.00 percentage points.

If you fixed at 6.20 per cent for three years and the revert rate is 7.40 per cent when the term ends, your repayment jumps unless you act. That increase affects your cash flow and your tax position. The deduction rises, but so does the amount you need to fund each month.

In our experience, the period six months before fixed rate expiry is when you should review your loan structure. Lenders will often offer retention rates to stop you refinancing elsewhere. Those rates are negotiable, particularly for borrowers with stable income and low loan to value ratios. Public service employees have an advantage during those conversations because employment stability matters to credit teams.

Fixed splits and portfolio flexibility

You don't need to fix the entire loan amount. A split structure lets you fix part of the debt and leave the rest on a variable rate. That approach gives you repayment flexibility and partial rate protection without locking everything away.

If you have a $500,000 investment loan, you might fix $300,000 at 6.10 per cent for three years and leave $200,000 variable at 6.50 per cent. The variable portion lets you make extra repayments or redraw funds without penalty. The fixed portion stabilises your core interest cost and the tax deduction that flows from it.

Lenders allow multiple splits, so you can stagger fixed terms across different periods. That strategy smooths the impact of rate changes and gives you regular opportunities to reassess. It also avoids the situation where your entire loan reverts to a higher variable rate on the same day.

Refinancing out of a fixed rate before the term ends

Breaking a fixed rate early triggers an economic cost to the lender if rates have fallen. The lender calculates the difference between the fixed rate you're paying and the rate they can now earn by lending that money elsewhere. You pay that difference as a break cost, which can run into thousands of dollars depending on the amount outstanding and how much time remains.

Break costs are not charged if rates have risen since you fixed. In that scenario, the lender is better off getting the money back to lend at a higher rate. The calculation is opaque, and most lenders won't provide a reliable estimate until you formally request discharge.

If you're considering a refinance to release equity or consolidate debt, check the break cost first. Sometimes the benefit of the new loan structure outweighs the exit penalty, but that's a calculation you need to run with actual figures rather than assumptions.

Rate discounts and serviceability for ACT employees

Public service employment gives you access to better loan options and tighter pricing. Some lenders offer deeper discounts to Australian Public Service and ACT Government employees because the credit risk is lower. That discount can reduce your investor fixed rate by 0.10 to 0.20 percentage points compared to standard pricing.

The margin shows up during serviceability assessment as well. Lenders apply a buffer of 3 percentage points above the loan rate when calculating whether you can afford the repayment. If you're fixing at 6.20 per cent, the bank tests you at 9.20 per cent. Stable public sector income helps you pass that test at higher loan amounts than borrowers in less secure roles.

Debt-to-income caps introduced in February 2026 mean lenders now track how much you're borrowing relative to your gross salary. Public servants with clear payslips and predictable income progression are well positioned under that framework, but it still limits how much you can borrow if you're already carrying other debt.

Call one of our team or book an appointment at a time that works for you. We'll review your current position, compare fixed and variable structures, and identify which lenders are offering the most competitive terms for ACT Government employees with investment property goals.

Frequently Asked Questions