Understanding the Basics of Fixed, Variable and Split Loans

If you are buying an investment property, the rate structure you choose decides how much certainty you get and how much flexibility you give up.

A fixed rate locks your repayments, a variable rate moves with the lender, and a split loan does a bit of both. Whether you are eyeing an apartment near Pacific Fair, or you already own near the Broadbeach light rail and are thinking about your next step, this guide walks through the trade-offs in plain language.

What Is the Difference Between a Fixed and Variable Investment Loan?

A fixed rate keeps your interest rate and repayments the same for an agreed period, while a variable rate can rise or fall at any time when your lender changes it. The right choice depends on whether you value certainty or flexibility more.

The main benefit of fixing is budgeting. You know exactly what the loan costs each month, which helps when your rental income is the thing paying much of it. The main trade-off is that fixed loans can limit extra repayments, and leaving early can trigger break costs. Whether a fixed loan allows an offset account or redraw varies by lender, so ask before you sign.

A variable rate usually gives you more room to move. Many lenders pair it with features such as offset accounts and extra repayments, though this differs between products. The trade-off is that your repayments can increase if the lender lifts the rate, so you need a buffer in your budget.

How Does a Split Loan Work for a Property Investor?

A split loan divides your borrowing into two portions, with one fixed and one variable. You choose the proportion, such as half and half, so you get some certainty and some flexibility.

It suits investors who feel torn. If rates fall, the variable portion benefits. If they rise, the fixed portion holds steady. The cost is that you will never fully benefit from either outcome, and the fixed portion still carries the usual limits and potential break costs. Whether you can move money between the two portions depends on the lender.

Consider a Broadbeach investor who is buying an apartment and worries about rising repayments, but also wants to park spare cash in an offset account. As an illustration, they borrow $600,000 at an example rate of 6.75% p.a. Interest-only repayments on that amount would be about $3,375 a month, and principal and interest over 30 years would be roughly $3,892 a month. They split the loan, fixing $300,000 and keeping $300,000 variable with an offset. The fixed half gives them a known repayment, and the variable half lets them put spare savings against the balance. The outcome is a repayment they can plan around, with room to adjust if their situation changes. The cost is that the fixed half cannot take all those extra payments if the lender restricts them. These figures are illustrative only and use one rate for comparison. You can test your own numbers with our loan repayments calculator.

Should I Choose Interest Only or Principal and Interest?

Interest only means you pay just the interest for a set period, so your repayments are lower but your loan balance does not fall. Principal and interest repayments cost more each month because they also pay down the loan.

Using the same illustrative 6.75% p.a. on $600,000, the interest-only repayment is about $3,375 a month. If that period lasts five years and the loan then switches to principal and interest, the repayment is worked out over the remaining 25 years, which is about $4,145 a month. That step up catches some investors off guard, so plan for it early.

Interest only does not increase how much you can borrow. Lenders regulated by APRA are expected to assess your ability to repay principal and interest over the term that remains after the interest-only period, which can reduce your maximum loan compared with a principal and interest loan.

On tax, interest on money borrowed to buy a rental property is generally deductible, but only the interest part of a repayment, not the principal part. Please speak with your accountant about how this applies to you.

How Do Lenders Assess Investor Borrowing?

Lenders assess investor borrowing by testing whether you could still afford the loan if the interest rate were higher and by counting only part of your expected rent. For lenders regulated by APRA, the test rate is at least 3.0 percentage points above the loan rate.

APRA's guidance also says prudent lenders count no more than 80 per cent of expected rent, to allow for times when the property is empty. Each lender then sets its own policy on the rest, including how it treats a rental appraisal for a new purchase. This is one reason two lenders can give you quite different answers. As brokers, we can compare options for you and talk through your borrowing capacity before you fall in love with a property.

Deposit size also matters. Lenders mortgage insurance is generally required when your loan is above 80 per cent of the property value. That is a lender and insurer rule rather than a legal limit, and the premium is an extra cost you pay.

Do Negative Gearing Changes Affect Which Loan Structure You Pick?

The rate structure does not change whether interest is deductible, but recent tax changes affect how a rental loss can be used for some properties. Speak with your accountant before you buy.

Under the new rules, properties held at 7:30pm AEST on 12 May 2026 keep their current treatment, as do eligible new builds. From the 2027-28 income year, net rental losses on established residential properties bought after that time can only be used against other residential property income. That makes it worth checking how much of your repayment you can realistically carry from your own income, particularly if you choose interest only to keep repayments low.

When Should You Review or Refinance Your Investment Loan?

Review your loan when your fixed term is ending, your circumstances change, or your repayments no longer suit your goals. Refinancing may cost you fees, so it is worth weighing those against any benefit.

A fixed rate expiry is the classic prompt, because many loans move to a different rate when the fixed period ends. Our team can walk you through your fixed rate expiry options and look at refinancing if it makes sense. If you are still at the starting line, our investment loans page explains how we approach each stage.

If you borrow against equity to fund something personal, such as a holiday, the interest on that part is not deductible. Deductibility depends on what the money is used for, so keep investment and private borrowing separate where you can.

We live and work on the Gold Coast, and we want you to feel looked after, not processed. Call one of our team or book an appointment at a time that works for you, and we will talk through your goals over a coffee.

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