How to Lock in Rates on Your Investment Loan

A fixed rate investment loan protects your borrowing cost against rate rises for an agreed period, typically one to five years. That certainty can make budgeting easier, particularly when rental income and tax treatment are in flux, but the trade-off is less flexibility and potential break costs if you exit early.

Fixed rates are priced based on wholesale swap rates and lender margins, not the Reserve Bank cash rate. The rate you lock in today reflects where the market expects rates to be over the fixed term, not where they are right now. Lenders also apply serviceability tests at rates above the actual product rate, currently at least 3.0 percentage points higher under APRA requirements, which means you need to demonstrate capacity to service the loan at a much higher rate than you will initially pay.

What Break Costs Mean When You Fix

Break costs apply when you repay, refinance, or exceed your prepayment allowance during a fixed rate period. The cost reflects the difference between your fixed rate and the lender's wholesale cost to replace that funding for the remaining term. If rates have fallen since you fixed, you will likely pay a break cost. If rates have risen, some lenders will apply a nil break cost or even a small rebate, though this is less common.

Consider a Chadstone investor who fixed a loan at 5.8 per cent in early 2025 for three years. Twelve months later, wholesale rates have dropped and the investor wants to sell the property. The lender calculates a break cost of approximately $6,400 on a $550,000 loan with two years remaining. The investor proceeds with the sale, pays the break cost from settlement, and moves on. The cost was disclosed in the loan contract, but the specific amount was not known until the payout figure was requested.

Most lenders allow small additional repayments during a fixed period, commonly up to $10,000 or $20,000 per year without penalty. Anything above that threshold triggers a break cost calculation. Refinancing during a fixed term also attracts break costs unless you are switching to another product with the same lender and they agree to waive the fee.

How Serviceability Works on Fixed Investment Loans

Lenders assess your ability to service an investment loan by applying a buffer of at least 3.0 percentage points above the loan rate and factoring in only a portion of expected rental income, commonly 80 per cent. If you are fixing at 5.5 per cent, the lender tests your capacity at 8.5 per cent or higher. That buffer applies whether you fix or choose a variable rate, but it can influence how much you are approved to borrow.

From 1 February 2026, APRA introduced a debt-to-income lending limit capping high-DTI lending at 20 per cent of new investor loans per lender. If your total borrowing across all loans exceeds six times your gross income, some lenders may decline the application or require a larger deposit to bring the ratio below that threshold. This does not affect existing borrowers, but it does tighten access for new investment loan applications, particularly in areas like Chadstone where median property values sit comfortably above $1 million for houses and around $600,000 for units.

Grandfathering and Negative Gearing After May 2026

Properties held or under contract at 7:30pm AEST on 12 May 2026 retain full negative gearing treatment, meaning rental losses can continue to be deducted against salary and other income indefinitely. Established properties acquired after that date and settled after 30 June 2027 are subject to the new rules, which quarantine rental losses to offset only against other residential property income from the 2027-28 income year onward.

New builds remain exempt. If you purchase an eligible new dwelling constructed on previously vacant land, or a development that increases the total number of dwellings on the site, you retain access to full negative gearing and can also choose between the 50 per cent capital gains tax discount or indexed cost base treatment when you eventually sell. That exemption applies even if you acquire the property after 12 May 2026, provided the dwelling has not been occupied for more than 12 months before you purchase it.

Fixed rate terms do not influence grandfathering status. What matters is the date of contract and settlement, and whether the property qualifies as a new build. A three-year fixed loan taken out in late 2026 on an established Chadstone apartment acquired after the cut-off date will be subject to the new quarantining rules when the investor lodges their 2027-28 tax return, regardless of whether the loan is still in its fixed period at that time.

When Splitting Your Loan Makes Sense

A split loan divides your borrowing between fixed and variable portions, commonly 50/50 or 70/30. The variable portion gives you access to offset accounts, unrestricted prepayments, and the ability to redraw funds if the loan structure allows it. The fixed portion delivers rate certainty and stable repayments for that segment.

Chadstone investors often hold properties close to Chadstone Shopping Centre, Holmesglen TAFE, or the Monash employment precinct, where tenant demand from retail workers, students, and healthcare professionals remains consistent. In that context, a split structure allows you to pay down the variable portion using surplus rental income or offset account balances while keeping a fixed rate floor under a portion of the debt.

Lenders typically charge two sets of fees when you split: an application fee for each loan portion and, in some cases, separate ongoing account-keeping fees. Not all lenders offer split loans on investment lending, and those that do may restrict the minimum size of each split or require both portions to settle simultaneously. When comparing loan products, confirm whether offsets are available on the variable split, whether the fixed portion allows any prepayments, and how break costs are calculated if you later consolidate the two portions.

Interest-Only Fixed Periods and LVR Limits

Interest-only repayments reduce your monthly outgoing and can improve cash flow, particularly in the early years of ownership when other costs such as body corporate fees, council rates, and landlord insurance are also being established. Most lenders allow interest-only periods of up to five years on investment loans, though some restrict this to three years or require the loan to revert to principal-and-interest repayments after that time.

Under APS 112, a loan with an interest-only period exceeding five years and an LVR above 80 per cent is classified as non-standard, which increases the lender's capital requirement and usually results in a higher interest rate or a declined application. If you are borrowing above 80 per cent LVR and want to fix on an interest-only basis, confirm the maximum interest-only term the lender will approve before you proceed.

Lenders Mortgage Insurance applies when your deposit is less than 20 per cent. The premium is calculated on the full loan amount and LVR, and is generally capitalised into the loan or paid upfront at settlement. Some lenders allow you to include stamp duty, legal fees, and LMI in the loan amount, but this increases your LVR and may push you into a higher LMI premium bracket or trigger a decline if the total LVR exceeds the lender's maximum, commonly 90 per cent for investment lending and occasionally 95 per cent for specific borrower profiles.

Capital Gains Tax Treatment From July 2027

From 1 July 2027, capital gains accruing on investment properties are taxed differently depending on when you acquired the property and whether it qualifies as a new build. For properties owned before 1 July 2027, gains are apportioned: the portion accruing before that date is taxed under the current 50 per cent discount rules, and the portion accruing after that date is indexed to inflation with a 30 per cent minimum tax rate applied to real gains.

You can obtain a market valuation as at 1 July 2027 or apply an ATO apportionment formula when you sell. New build properties give you a choice at sale time: apply the 50 per cent discount or use indexed cost base treatment with the 30 per cent minimum rate. The choice is made when you lodge your tax return for the year of disposal, and you would typically model both scenarios with your accountant to identify which delivers the lower tax outcome based on your marginal rate and the inflation-adjusted gain.

Fixed loan terms do not align with CGT rule changes. A five-year fixed rate loan commencing in late 2026 will span both the old and new CGT regimes, but the loan structure itself does not affect how the gain is calculated or taxed. What matters is the acquisition date, the sale date, and whether the property is a new build.

Call one of our team or book an appointment at a time that works for you. We work with clients across Chadstone and the surrounding Monash and Stonnington areas, and we can help you compare fixed, variable, and split loan structures from lenders across Australia.

Frequently Asked Questions