Most detectives looking at an investment property hit the same question: do you lock in a fixed rate, stick with variable, or split the loan between both?
The choice affects what you pay each month, how much flexibility you get when circumstances change, and what happens when your fixed period ends. You need a structure that works when you're rostered on nights for three months or pulled into an operation that eats your weekends.
Fixed Rate Investment Loans: When Certainty Matters More Than Flexibility
A fixed rate investment loan locks your interest rate for a set period, typically one to five years. Your repayment stays the same regardless of what the Reserve Bank does with the cash rate.
Consider an investor who bought a two-bedroom unit as a rental property last year. They fixed the rate for three years at the time. When the RBA lifted rates twice in six months, their repayment stayed unchanged while colleagues on variable loans saw their monthly cost jump by over $200. The certainty meant they could forecast cash flow even when rental vacancy sat at three weeks between tenants.
Fixed rates come with restrictions. Most lenders cap extra repayments at $10,000 to $30,000 per year during the fixed term. If you sell the property or refinance before the term ends, break costs apply. Those costs can run into thousands of dollars depending on how far rates have moved since you locked in. If you're considering an investment loan refinance in the next 12 to 18 months, a fixed rate might not suit.
Lenders typically price fixed rates based on wholesale swap rates rather than the cash rate. You can sometimes lock in a lower rate than the current variable rate if the market expects rate cuts ahead, but you won't benefit if those cuts actually arrive.
Variable Rate Investment Loans: Flexibility With Full Exposure to Rate Movements
A variable rate moves up and down with the lender's standard rate changes. You get full offset account access, unlimited extra repayments, and no break costs if you refinance or sell.
The offset account is the main reason detectives choose variable. Every dollar sitting in the linked offset reduces the loan balance you're charged interest on. If you're paying down debt while building your property portfolio, that feature compounds quickly. Salary deposits, overtime and allowances all sit in the offset cutting your daily interest charge without being locked into the loan.
Variable rates shift when lenders respond to RBA moves or funding cost changes. Your repayment can move four or five times in a year. In our experience, investors on variable manage this by keeping a margin in their offset or budgeting to the higher end of the expected range.
Most lenders offer package discounts on variable investment loans if you hold multiple products with them or borrow above a certain threshold. Rate discounts of 0.60 to 1.00 percentage points off the standard variable rate are typical for investment borrowing depending on your loan amount and deposit size.
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Split Loan Structures: Balancing Rate Protection and Repayment Flexibility
A split loan divides your borrowing between fixed and variable portions. Each portion has its own rate, features and limits.
The typical split is 50/50, but you can structure it however you need. Some investors fix 70 per cent for repayment certainty and keep 30 per cent variable with an offset for surplus cash. Others reverse that ratio if they expect rate cuts or plan to make larger lump-sum repayments from bonuses or a future sale.
You're not locked into the split forever. When the fixed portion expires, you can re-fix that portion at the current rate, roll it to variable, or adjust the split ratio entirely. If you've paid down the variable portion using your offset, you might re-fix a smaller amount the second time and keep more on variable going forward.
Each portion has separate account fees, so a split loan typically costs $10 to $15 more per month in administration compared to a single-rate product. That cost is negligible compared to the benefit of having both rate certainty and offset access on the same property.
Interest-Only Versus Principal and Interest Repayments on Investment Loans
Most lenders offer interest-only terms of one to five years on investment loans. Your repayment covers only the interest charge each month. The loan balance stays the same.
Investors use interest-only to maximise tax deductions and keep cash available for other investments or to manage irregular income. Detectives working long-term operations or secondments sometimes prefer interest-only because the repayment stays lower and predictable even when overtime dries up for a quarter.
Interest-only is available on fixed, variable and split loans. You can fix the rate and the repayment type separately. Once the interest-only period ends, the loan reverts to principal and interest unless you apply to extend it. Lenders reassess your income and borrowing capacity before approving an extension, and most cap total interest-only duration at five to ten years depending on your loan-to-value ratio.
Principal and interest repayments reduce your loan balance each month. You pay more than interest-only in the short term, but you're building equity and reducing your total interest cost over the life of the loan. If your strategy involves paying down investment debt to access equity for another purchase, principal and interest gets you there faster. More information on using equity for portfolio growth is covered in our guide to equity release loans.
How Loan-to-Value Ratio Affects Your Rate and Features
Your deposit size determines your loan-to-value ratio and that ratio affects your interest rate and product features. Borrow above 80 per cent LVR and you'll pay Lenders Mortgage Insurance plus a higher interest rate. Some lenders also restrict interest-only and offset access at higher LVRs.
Investor loans above 90 per cent LVR are rare. Most lenders cap investment lending at 90 per cent and require genuine savings or existing equity to make up the deposit. A small number of lenders will go to 95 per cent LVR for detectives and other law enforcement, but product choice narrows significantly at that level.
If you're using equity from your home to fund the investment deposit, the combined LVR across both properties matters. Lenders assess your total borrowing against the combined security value. You can read more about that approach on our page about investment loans for police officers.
Refinancing to a lower LVR after property values rise or after you've paid down the loan can unlock better rates and features. Once you drop below 80 per cent LVR, you're no longer paying the investment rate premium that applies at higher ratios.
Rate Differences Between Owner-Occupied and Investment Loans
Investment loan rates sit 0.20 to 0.60 percentage points higher than equivalent owner-occupied rates. The gap varies by lender and loan structure, but it exists across the market because investment lending is treated as higher risk under APRA prudential settings.
That rate difference applies whether you choose fixed, variable or split. An investment loan fixed for three years will cost more than an owner-occupied loan fixed for the same term with the same lender, even if every other feature is identical.
Some lenders narrow the gap if you borrow a large amount or hold multiple products with them. Package discounts and relationship pricing can bring an investment variable rate within 0.10 to 0.15 percentage points of the equivalent owner-occupied rate, but the investment loan is still priced higher.
If you're comparing loan structures, compare them within the investment category. A variable investment loan might carry a lower rate than a fixed investment loan depending on current pricing, but it won't beat a variable owner-occupied rate from the same lender.
Call one of our team or book an appointment at a time that works for you. We'll run the numbers on fixed, variable and split structures using current investment rates across the lenders we work with and show you what each option costs over the timeframe that matches your situation.
Frequently Asked Questions
Can I change from a fixed rate investment loan to a variable rate before the fixed term ends?
You can switch from fixed to variable before the term ends, but break costs will apply if interest rates have fallen since you locked in. Those costs can be significant depending on how much time remains on the fixed period and how far rates have moved.
Do all variable rate investment loans come with offset accounts?
Not all variable investment loans include offset accounts as standard. Some lenders offer offset only on premium or package products, while basic variable loans might not have that feature at all. You need to check the product terms before applying.
What happens to a split loan when the fixed portion expires?
When the fixed portion expires, it automatically rolls to the lender's standard variable rate unless you choose to re-fix it. You can re-fix at current rates, leave it on variable, or adjust the split ratio between the two portions at that time.
How does interest-only affect my tax deductions on an investment loan?
Interest-only maximises your tax deductions because you're paying the full interest amount each month without reducing the loan balance. Once the loan switches to principal and interest, part of your repayment goes toward the principal and that portion is not deductible.
Can I use equity from my home to avoid paying Lenders Mortgage Insurance on an investment loan?
Yes, if you have enough equity in your home, you can borrow against it to fund part or all of the investment deposit. This can reduce your investment loan-to-value ratio below 80 per cent and avoid Lenders Mortgage Insurance on the investment property.
