Fixed Rate Investment Loans: The Pros and Cons

Understanding Fixed Rate Investment Loans

When buying an investment property in Keysborough, choosing between a variable rate and fixed rate loan is one of the most important decisions you'll make. A fixed interest rate investment loan locks in your interest rate for a set period, typically between one and five years. This means your investment loan repayments remain the same regardless of market fluctuations, providing certainty for calculating investment loan repayments and managing your property investment finance.

For property investors in Keysborough, fixed rate investment loan products offer predictability that can be valuable when planning your investment property strategy. Understanding both the advantages and limitations of fixed rates will help you make an informed decision about your rental property loan.

Key Investment Loan Features of Fixed Rates

Fixed rate investment loans come with specific investment loan features that differentiate them from variable interest rate options:

• Rate certainty: Your investor interest rates remain locked for the fixed period
• Predictable repayments: Makes budgeting for rental income and expenses more straightforward
• Protection from rate rises: If interest rates increase, your repayments stay the same
• Principal and interest or interest only: Most lenders offer both repayment structures on fixed rates
• Access to equity: Some fixed rate products allow equity release for portfolio growth

When comparing investment loan options across banks and lenders, it's important to review each lender's specific terms and conditions, as investment loan features can vary significantly.

The Advantages of Fixed Rate Investment Loans

Financial Certainty and Planning

One of the primary investment loan benefits of fixing your rate is the ability to plan with confidence. Property investors in Keysborough can calculate their exact repayments, making it easier to determine whether rental income will cover expenses and how the property contributes to building wealth through negative gearing benefits.

Protection During Rising Rate Environments

When interest rates climb, fixed rate borrowers continue paying their locked-in rate. This protection can result in substantial savings and helps maintain positive cash flow even when vacancy rate or other expenses impact your passive income.

Maximise Tax Deductions with Certainty

Knowing your exact interest payments helps you accurately forecast claimable expenses and maximise tax deductions throughout the financial year. This certainty is valuable for property investors managing multiple rental properties or planning their overall property investment strategy.

The Limitations to Consider

Reduced Flexibility

Fixed rate investment loans typically have restrictions that variable products don't. Many lenders limit additional repayments to around $10,000 to $30,000 per year without penalty. If you're planning to leverage equity or make significant extra payments to reduce your loan amount quickly, a fixed rate may not align with your strategy.

Break Costs Can Be Substantial

If you need to refinance, sell the property, or significantly change your loan before the fixed period ends, you may face considerable break costs. These fees compensate the lender for lost interest and can amount to thousands of dollars, potentially offsetting any investment loan benefits you've gained.

Missing Out on Rate Decreases

While fixed rates protect you from increases, they also prevent you from benefiting if interest rates fall. Variable rate borrowers automatically receive rate discounts when market rates drop, but fixed rate borrowers must wait until their fixed period expires.

Limited Access to Offset Accounts

Many fixed rate investment loan products don't offer offset accounts, or they offer limited functionality. This can impact your ability to reduce interest charges through depositing rental income or savings, potentially reducing overall tax benefits.

Investment Loan Application Considerations

When completing your investment loan application for a fixed rate product, lenders assess several factors:

• Your investor deposit (typically requiring a lower loan to value ratio (LVR) compared to owner-occupied properties)
• Rental income potential of the property
• Your existing investor borrowing capacity
• Body corporate fees and other property expenses
• Your overall investment property rates exposure across your portfolio

Lenders offering access to investment loan options from banks and lenders across Australia each have different serviceability criteria, particularly regarding how they assess rental income. Some lenders use 80% of expected rental income, while others may assess differently based on location and property type.

Finding the Right Investment Loan Amount

Determining your investment loan amount involves balancing several factors. A higher investor deposit reduces your LVR and may help you avoid Lenders Mortgage Insurance (LMI), saving thousands of dollars. However, some property investors prefer to minimise their deposit to preserve capital for other opportunities or to leverage equity across multiple properties.

Keysborough property investors should also consider stamp duty and other upfront costs when calculating their required investment loan amount. These claimable expenses can be factored into your property investment strategy.

Interest Only Investment Loans with Fixed Rates

Many property investors choose interest only investment loans to maximise cash flow and tax benefits. With an interest only structure, your repayments are lower because you're not reducing the principal. This approach is popular for building wealth through property while maintaining financial flexibility.

Fixed rate interest only investment products combine rate certainty with lower repayments, though it's important to have a clear strategy for how you'll manage the loan when the interest only period expires.

When to Consider Investment Loan Refinance

As your fixed period approaches expiry, it's worth reviewing your investment loan refinance options. Interest rate environments change, and the investment loan products available when you originally borrowed may differ significantly from current offerings. Refinancing can provide opportunities to secure better investor interest rates or access features that support your evolving property investment strategy.

Property investors in Keysborough should also consider a loan health check if their circumstances have changed, such as increased equity in their portfolio or improved borrowing capacity.

Building Your Property Investment Portfolio

Fixed rate investment loans can play an important role in portfolio growth and achieving financial freedom. The certainty they provide allows property investors to plan acquisitions, manage multiple properties, and build wealth systematically through property investment.

Whether you're purchasing your first investment property or expanding an existing portfolio, understanding how fixed and variable rate products work together can optimise your investment property finance strategy.

Making Your Decision

The choice between fixed and variable interest rates depends on your individual circumstances, risk tolerance, and property investment strategy. Fixed rates suit investors who value certainty and want protection from rate increases, while variable rates offer flexibility and the potential for interest rate discounts.

Many Keysborough property investors choose split loans, fixing a portion of their investment loan amount while keeping the remainder variable. This approach provides some certainty while maintaining flexibility for additional repayments and access to features like offset accounts.

At Ozgroup Finance, we help property investors access investment loan options from banks and lenders across Australia, comparing investment loan products to find solutions that align with your goals. Our experienced team understands the local Keysborough market and can guide you through calculating investment loan repayments, understanding LVR requirements, and structuring loans to maximise tax deductions and support your wealth-building objectives.

Whether you're buying an investment property, considering an investment loan refinance, or planning portfolio expansion, professional advice ensures you make informed decisions about investor interest rates, investment loan features, and overall investment property finance strategy.

Call one of our team or book an appointment at a time that works for you to discuss your investment loan options and how fixed rate products might support your property investment goals.