Fixed rate investment loans let you lock in your interest rate for a set period, typically one to five years.
For property investors in Prestons, this certainty matters when you're calculating investment loan repayments against rental income from tenants who might be paying $550 to $650 per week for a three-bedroom house in the area. When your mortgage cost stays the same regardless of what the Reserve Bank does, you can plan your portfolio growth without worrying about rate rises eating into your passive income.
Why Prestons Investors Choose Fixed Rates
Investors buying in Prestons often lock in rates to protect their borrowing capacity for future purchases. Consider an investor who purchases a four-bedroom house on a quarter-acre block near Prestons Shopping Village for $850,000 with a 20% investor deposit of $170,000. Their loan amount of $680,000 on a variable rate might start at one level, but three rate rises later, their serviceability for a second property disappears. On a fixed rate, their repayments stay consistent, their rental income continues to cover most of the mortgage, and their ability to leverage equity for the next investment remains intact. After two years of principal and interest repayments and modest capital growth, they refinance the fixed portion to access equity for a second deposit without the repayment shock that variable rate holders experienced during the same period.
What You Give Up When You Fix
Fixed rates typically sit higher than variable rates at the time you lock them in, and you lose access to offset accounts on the fixed portion. For investors relying on negative gearing benefits and maximising tax deductions, this becomes relevant. The interest on your investment loan is tax-deductible, but you can't park your cash in an offset to reduce that interest like you would on an owner-occupied loan. Some lenders offer a split structure where you fix 60% to 80% of your loan and leave the rest variable with an offset attached, giving you rate protection on the bulk of your debt while keeping some flexibility for extra repayments or holding cash.
You also face break costs if you need to exit the fixed term early. Selling the property, refinancing to access equity, or paying down the loan ahead of schedule can trigger fees that wipe out any rate advantage you gained.
Interest Only on Fixed Rates
Most investment property finance is structured as interest only for the first one to five years, and you can fix your rate on an interest only investment loan. Your repayments stay lower, your tax deductions stay higher, and your cash isn't tied up in a property you don't live in. For the Prestons investor with $680,000 borrowed, the difference between principal and interest and interest only repayments can be $800 to $1,200 per month depending on the interest rate, and that difference either comes out of your pocket if the rental income doesn't cover it or gets redirected into your next deposit if it does.
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How Loan to Value Ratio Affects Your Rate
Your interest rate on a fixed investment loan depends partly on your loan to value ratio. Borrowing 80% of the property value typically gets you a lower rate than borrowing 90%, and staying under 80% means you avoid Lenders Mortgage Insurance. In Prestons, where house prices sit around $850,000 to $950,000, the difference between a $760,000 loan at 80% LVR and a $855,000 loan at 90% LVR isn't just the LMI premium of $20,000 to $30,000. It's also the interest rate discount you miss out on, which over a five-year fixed term can add thousands to your repayments. Investors with equity in an existing property often leverage that equity to hit the 80% threshold on the new purchase, securing both the rate discount and avoiding LMI.
Fixed Rates and Vacancy Rate Risk
Prestons has a relatively low vacancy rate, but fixing your rate gives you protection if you do face a gap between tenants. When your repayments are locked in and your rental income stops for six weeks, you know exactly what you need to cover. On a variable rate during a period of rising costs, that same vacancy could coincide with a rate increase, doubling the hit to your cash flow. Property investors building wealth in growth areas like Prestons often fix rates not because they expect rates to rise, but because they want certainty while they focus on finding the next opportunity.
When Fixed Rates Work Against You
Fixed rates become a problem when your property investment strategy changes mid-term. In our experience, investors who fix for five years sometimes find a development opportunity, need to sell and consolidate, or want to access equity release for renovations that will increase rent. Breaking a fixed rate two years into a five-year term can cost $15,000 to $40,000 depending on how much rates have moved since you locked in. That's why many investors in Prestons fix for two or three years rather than five, giving them protection through the current rate environment without locking themselves in so long that their plans can't adapt. You can also stagger your fixed terms across multiple investment property loans so that one expires each year, giving you regular opportunities to refinance or adjust your structure as your portfolio grows.
Reviewing Your Investment Loan Options
When you're comparing investment loan products, the fixed rate itself is only part of the calculation. Some lenders allow up to 10% extra repayments per year even on a fixed loan, which can matter if your rental income exceeds your mortgage cost and you want to pay down debt faster. Others offer portability, letting you move the fixed loan to a different property if you sell the Prestons house and buy elsewhere without triggering break costs. These investment loan features don't appear on a rate comparison site, but they change what the loan can do for you when your circumstances shift.
If you're considering locking in a fixed rate on an investment property in Prestons or reviewing your current loan before it expires, call one of our team or book an appointment at a time that works for you.
Frequently Asked Questions
Can I have an offset account on a fixed rate investment loan?
Most fixed rate investment loans do not include offset accounts. Some lenders offer a split loan structure where you fix part of the loan and keep the variable portion linked to an offset, giving you both rate certainty and some flexibility.
What happens if I need to sell my investment property during a fixed rate term?
Selling during a fixed term usually triggers break costs, which can range from a few thousand to tens of thousands of dollars depending on how much rates have moved since you locked in. These costs are calculated based on the lender's funding loss when you exit early.
Should I fix my investment loan on interest only or principal and interest?
Most investors choose interest only to maximise tax deductions and keep repayments lower, freeing up cash for additional investments. You can fix your rate on either structure, but interest only is more common for investment property finance.
How does my loan to value ratio affect my fixed rate?
Borrowing 80% or less of the property value typically qualifies you for a better interest rate than borrowing 85% or 90%. Staying under 80% also helps you avoid Lenders Mortgage Insurance, reducing your upfront costs.
How long should I fix my investment loan rate for?
Most investors in Prestons fix for two to three years rather than five, balancing rate protection with flexibility. Shorter fixed terms reduce the risk of large break costs if your property investment strategy changes before the term ends.
