Unlock the secrets to fixed rates and offset on investment loans

Fixed investment loans lock in the rate but also lock out the offset

Most lenders won't let you attach an offset account to a fixed rate investment loan. The offset account is a variable rate feature, and when you choose certainty on the rate, you give up flexibility on the structure.

This matters because investors in Kooyong often carry savings or rental income in an offset account to reduce their interest bill without losing access to liquidity. If you fix the whole loan, you lose that ability.

Consider a buyer who purchases a two-bedroom apartment in Kooyong at the suburb's current median for investment. They have $60,000 in savings they plan to keep available for future deposits or renovations. If they fix the entire investment loan, that $60,000 sits in a standard savings account earning taxable interest instead of sitting in an offset reducing the interest charged on the loan. Over a three-year fixed term, that could mean thousands in lost tax efficiency.

The split loan structure preserves both certainty and flexibility

You can fix part of the loan and leave part variable. That gives you a portion with a locked rate and a portion that accepts an offset account.

A typical split might be 60 per cent fixed and 40 per cent variable with offset. The fixed portion protects you from rate rises on the majority of the debt. The variable portion with offset gives you somewhere to park rental income and savings so they reduce the interest charged.

In our experience, investors with irregular income or lumpy expenses prefer a larger variable portion. Investors who want predictable repayments and don't carry much surplus cash lean toward a higher fixed percentage. There's no universal answer, it depends on how much liquidity you expect to hold and whether you value rate protection over tax efficiency.

Interest-only repayments are common but not always available on fixed terms

Most investment loans are structured as interest-only for the first one to five years. This keeps the repayments lower and maximises the tax deduction, because principal repayments aren't deductible.

Lenders do offer interest-only investment loans on both variable and fixed rates, but the fixed rate interest-only options are often priced higher or come with stricter serviceability tests. Some lenders limit the interest-only period to three years on a fixed rate, while the same lender might offer five years on a variable product.

If you're planning to negatively gear the property and claim the loss against other income, the repayment type and the loan structure both affect how much you can deduct. Interest-only with a split loan gives you the clearest path to managing cashflow and tax at the same time, particularly if you're holding the property in an area like Kooyong where rental yields sit below 3 per cent and capital growth does most of the work.

Refinancing a fixed investment loan before the term ends can trigger break costs

If you lock in a rate and then want to refinance your investment loan or pay down a large amount before the fixed term expires, the lender may charge a break cost. That cost compensates the lender for the difference between the rate they locked in for you and the rate they can now earn in the wholesale market.

Break costs are unpredictable. If rates have risen since you fixed, the break cost is often zero or very low. If rates have fallen, the cost can run into thousands of dollars. Lenders calculate it using a present value formula that compares your fixed rate to the current swap rate for the remaining term.

This is one reason we regularly see investors in Kooyong keep the fixed portion below 70 per cent of the total loan amount. It leaves room to release equity or restructure without triggering a penalty on the entire balance. If your investment strategy involves building a portfolio quickly or refinancing to access equity within two or three years, fixing the whole loan creates friction you don't need.

Negative gearing rules are changing and that affects how you model the loan structure

From 1 July 2027, rental losses on residential investment properties acquired after 7:30pm AEST on 12 May 2026 can only be offset against residential rental income or carried forward. You can't offset them against salary or business income unless the property qualifies as an eligible new build.

This doesn't affect properties you already own or those you had under contract before that date, but it changes the borrowing and cashflow model for any new purchase. If you're buying an established apartment in Kooyong and expecting to negatively gear it against your wage income, that strategy has a hard stop in mid-2027 unless you settle before then.

Interest-only loans become less attractive under quarantined negative gearing because the rental loss can't reduce your taxable income outside the property. Principal and interest repayments still don't help, but the deduction benefit shrinks. Fixed rates are neutral on this question, the rule applies to all loan types. What changes is the question of whether locking in certainty for three or five years is worth it when the tax benefit you're protecting is smaller than it used to be.

Offset accounts on the variable portion still deliver full value for investors

Even though you can't attach an offset to the fixed portion, the offset on the variable split works exactly the same way it does on any other loan. Every dollar in the offset reduces the balance on which interest is calculated.

For an investor, this is valuable because rental income is often paid monthly and can sit in the offset between expenses. If you receive $2,400 a month in rent and your loan repayment is $2,800, that rent can sit in the offset and reduce the interest charged on the variable portion until you need to top up the repayment from your own cash.

The interest saving from the offset isn't a deduction, it's a reduction in the interest expense itself. You still claim the net interest you actually pay, but the offset makes sure you're not paying interest on money you're about to spend anyway. That difference compounds over time, particularly if you're holding properties in low-yield suburbs like Kooyong where every dollar of cashflow efficiency matters.

Loan features matter more than the rate when you're holding long term

Kooyong investors are typically buying for capital growth rather than yield. The suburb sits inside the Stonnington local government area, close to Glenferrie Road shopping and Kooyong station, with median prices well above the Melbourne average. Rental returns are modest, but the tenant profile is stable and the area has a long track record of price growth through cycles.

When you're holding for ten or fifteen years, the ability to restructure your loan, access equity, or shift between fixed and variable becomes more important than securing the lowest rate today. A loan structure that lets you fix part of the borrowing, keep an offset on the rest, and avoid break costs if you need to move gives you more control over the long run than chasing a rate discount that disappears in twelve months.

Call one of our team or book an appointment at a time that works for you. We'll walk through your deposit, your income, and your property plans, then model out a loan structure that fits the way you actually want to invest.

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