When to Lock in Fixed Rates on Investment Loans

Fixed rate investment loans suit buyers who want predictable repayments for a set period, but the decision to fix part or all of your loan depends more on your exit timeline than on whether rates might rise or fall.

Parramatta's rental market moves with the commercial cycle around the CBD precinct and with each wave of apartment supply hitting Church Street and the river foreshore. If your investment strategy depends on holding through a full cycle or refinancing within two years to access equity, the length of your fixed rate term changes how much flexibility you keep and how much you pay if plans change.

Fixed Rate Terms Available for Investment Property Loans

Most lenders offer fixed rate terms from one to five years on investment loans, with three-year terms the most commonly chosen by property investors. Your fixed rate locks in the interest rate for that period regardless of whether the Reserve Bank moves the cash rate up or down, which means your repayment amount stays the same if you're on principal and interest, or your interest charge stays the same if you're on interest only.

The longer the fixed term, the higher the rate tends to be, because lenders price in the risk of holding that rate for an extended period. A five-year fixed rate will usually sit above a two-year rate by anywhere from 0.20 to 0.80 percentage points depending on the lender and the current rate environment.

Why Investment Loan Fixed Rates Cost More Than Owner-Occupier Fixed Rates

Investment property rates sit higher than owner-occupier rates because lenders treat investor lending as higher risk under the APRA prudential framework. Under APS 112, investor loans attract higher risk weights than owner-occupied loans at the same loan to value ratio, which increases the capital cost for the lender and flows through to the rate you're quoted.

The difference typically ranges from 0.30 to 0.60 percentage points depending on whether you're fixing on interest only or principal and interest. Interest only investment loans sit at the top of the pricing stack because they carry the highest risk weight and because the loan balance doesn't reduce during the interest only period.

Splitting Between Fixed and Variable on an Investment Loan

Splitting your loan between fixed and variable rates lets you hold some certainty on repayments while keeping access to offset accounts, extra repayments and penalty-free refinancing on the variable portion. Most lenders allow you to split in any proportion, so you might fix 50 per cent on a three-year term and leave 50 per cent variable, or fix 70 per cent and keep 30 per cent variable.

Consider a buyer who purchased a two-bedroom unit near Parramatta Square as a rental property and borrowed 80 per cent of the purchase price. They split the loan 60 per cent fixed for three years and 40 per cent variable. Eighteen months later, the property increased in value and they wanted to refinance to release equity and buy a second investment property. Because 40 per cent of the loan sat on a variable rate, they could refinance that portion without break costs and negotiate to port the fixed portion to the new lender, which kept the exit cost low and let them access the equity when the opportunity came up.

Offset accounts don't work against fixed rate loan portions, so if you're holding cash for upcoming repairs, vacancy periods or land tax payments, keep that portion of the loan variable so the offset can reduce the interest you're charged on that balance.

When Fixed Rates Make Sense for Parramatta Investors

Fixed rates suit investors who want to remove uncertainty from their cash flow for a set period, particularly if you're holding the property through a known expense period such as a strata levy increase, a planned renovation, or a stretch where vacancy rates in Parramatta's apartment market might climb as new supply settles.

They also suit buyers who are at or near their maximum borrowing capacity and can't absorb a rate rise on the full loan balance without affecting other commitments. If a 1.0 percentage point rise in rates would push your repayments beyond what rental income and your offset buffer can cover, fixing at least part of the loan removes that risk for the fixed term.

Fixed rates don't suit investors who plan to sell or refinance within the fixed term, because break costs can run into thousands or tens of thousands of dollars depending on how much rates have moved since you locked in. If your strategy involves turning over properties every 12 to 18 months, or if you're planning to renovate and refinance quickly to pull equity, a variable rate gives you the flexibility to exit without penalty.

What Happens When Your Fixed Rate Term Ends

When your fixed term expires, your loan automatically rolls to the lender's variable rate for investment loans unless you choose to refix or refinance. The variable rate you roll onto is usually higher than the variable rate advertised for new customers, which is why many investors treat a fixed rate expiry as a prompt to refinance or renegotiate rather than letting it roll.

You can usually lock in a new fixed rate up to 90 days before your current fixed term ends, which means you can secure the new rate while comparing offers from other lenders. If you refinance within 30 days either side of the fixed term ending, most lenders waive break costs, so the window to move is narrow but usable.

If you've been paying interest only during the fixed term and the interest only period expires at the same time as the fixed rate, your loan will roll to principal and interest on the variable rate, which can increase your repayment by 30 to 40 per cent depending on the remaining loan term. Planning around both expiry dates avoids a sudden repayment jump that affects your cash flow or borrowing capacity for future purchases.

Porting a Fixed Rate When You Refinance

Some lenders allow you to port your fixed rate to a new lender if you refinance before the fixed term ends, which means the new lender takes over the existing fixed rate and term rather than charging you break costs. Porting isn't available with all lenders and the new lender needs to agree to accept the ported rate as part of your refinance approval.

Porting works when rates have risen since you fixed, because the lender you're leaving would otherwise charge a break cost to compensate for the difference between your fixed rate and the lower current wholesale rate. The new lender may accept the ported fixed rate if it's still profitable compared to their current fixed rate offerings, but they'll assess your full application and serviceability before approving the port.

If rates have fallen since you fixed, porting doesn't help because the lender you're leaving will charge a break cost regardless, and the new lender has no reason to accept a higher fixed rate when they can offer you a lower one.

How APRA's Debt-to-Income Limits Affect Fixed Rate Choices

APRA's debt-to-income lending limits, which took effect in February, cap the amount of high-DTI lending each lender can write each quarter. For investment loans, lenders can lend up to 20 per cent of new investor loans to borrowers with a total DTI ratio of six times or greater. If you're borrowing near that threshold, fixing part of your loan can make your serviceability assessment more predictable because the lender knows exactly what your repayment will be for the fixed term.

If you're refinancing an existing investment loan and your total debt sits above six times your income, some lenders may require you to reduce your loan balance or increase your income before approving a refinance to a lower rate. Fixing part of the loan before you reach that threshold can lock in a lower rate while your serviceability still meets the lender's policy, which gives you a longer runway before you need to reduce debt or increase rent to qualify for the next refinance.

Call one of our team or book an appointment at a time that works for you to talk through how fixed rate terms fit your investment strategy and whether splitting or porting makes sense for your Parramatta property portfolio.

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