Top tips to choose fixed, variable & split loans

Investment property finance isn't one-size-fits-all, and the loan structure you choose affects your flexibility just as much as your repayments.

The difference between a fixed rate, a variable rate, and a split loan comes down to certainty versus flexibility. A fixed rate locks in your investor interest rate for a set period, typically one to five years, which means your repayments stay the same regardless of what the Reserve Bank does. A variable interest rate moves with the market, which means your repayments can change, but you also get access to features like offset accounts and the ability to make extra repayments without penalty. A split loan divides your loan amount between fixed and variable portions, giving you some of both.

Eltham's proximity to Greensborough and the broader Nillumbik region makes it a location where investors often hold property long-term, which means the loan structure needs to support not just the next year or two, but the next stage of your property investment strategy.

Fixed Rate Investment Loans: When Certainty Matters More Than Features

A fixed rate locks in your repayment for a set period, which can be useful if you're buying in a rising rate environment or if you need to forecast cash flow with precision.

Consider an investor who purchases a unit near Eltham's Main Street precinct on an interest only investment loan with a three-year fixed rate. The repayment stays the same for the entire fixed period, which means if rates rise during that time, the investor is protected. If rental income from the property remains steady, the investor knows exactly what the net holding cost will be each month, making it easier to plan for other expenses or additional property purchases.

The limitation is that fixed rate loans typically don't allow offset accounts, and any extra repayments are capped. If you want to pay down the loan faster or if you have surplus cash you'd like to park against the loan, a fixed rate won't accommodate that. Break costs can also apply if you need to exit the loan early, refinance, or sell the property before the fixed term ends.

Variable Rate Investment Loans: Flexibility for Active Investors

A variable rate gives you access to features that a fixed rate doesn't, including offset accounts, unlimited extra repayments, and the ability to redraw funds if needed.

Offset accounts are particularly useful for investors who are also managing owner-occupied debt or building cash reserves for their next purchase. Every dollar in the offset reduces the interest charged on the investment loan without affecting the deductibility of that interest. If you're holding funds for a deposit on a second property or managing lumpy income from a business, an offset linked to your investment property loan can reduce your interest cost while keeping those funds accessible.

Variable rates also allow you to make extra repayments without penalty, which can be useful if you're moving from interest only to principal and interest repayments and want to reduce the loan balance faster. The downside is that your repayment can change whenever the lender adjusts their rate, which means your cash flow needs to accommodate potential increases.

Split Loans: Dividing Risk Without Losing Flexibility

A split loan divides your total loan amount into a fixed portion and a variable portion, which means you get some certainty and some flexibility at the same time.

The split doesn't have to be even. You might fix 60% of the loan to lock in most of your repayment and leave 40% variable so you can still access an offset and make extra repayments if needed. Or you might fix 30% and leave 70% variable if you want maximum flexibility but still want a portion of your loan insulated from rate movements.

One scenario we regularly see involves an investor who's holding a property in Eltham while also planning to expand their property portfolio within the next year or two. They fix half the loan to stabilise their repayment and leave the other half variable with an offset attached. As they accumulate the deposit for the next property, the offset reduces the interest cost on the variable portion without locking the funds away. Once they're ready to buy, they can access the offset balance without needing to break a fixed loan or pay exit fees.

The trade-off is that you're managing two loan accounts instead of one, and each portion may have a different interest rate. Some lenders also apply separate fees to each split, so it's worth confirming the total cost before committing.

How Interest Only Periods Work Across Different Loan Structures

Most investment loans offer an interest only period, typically up to five years, and this option is available on fixed, variable, and split loans.

Interest only repayments mean you're only paying the interest charged each month, not reducing the principal. This lowers your monthly repayment, which can improve cash flow, particularly in the early years of ownership when other costs like body corporate fees, property management, and maintenance are also being established.

The benefit of interest only on an investment property is that it maximises your tax deductions while keeping your repayment low. The interest you pay is claimable as a deduction, and because you're not reducing the principal, your deductible interest remains higher for longer. Once the interest only period ends, the loan reverts to principal and interest, and your repayment increases because you're now paying down the loan balance over the remaining term.

If you're holding property in Eltham for capital growth rather than immediate equity reduction, an interest only structure on either a variable or split loan gives you flexibility to manage cash flow while the property appreciates.

Tax Considerations and Deductibility

The interest you pay on an investment property loan is generally claimable as a tax deduction, which is one of the main tax benefits of property investment. This applies whether your loan is fixed, variable, or split, and whether you're on interest only or principal and interest repayments.

Negative gearing benefits occur when the deductible expenses on your investment property, including loan interest, exceed the rental income you receive. That net loss can be offset against your other income, reducing your overall tax liability. For established properties purchased before Budget night in May 2026, the existing negative gearing rules continue to apply. For properties purchased after that date, changes to negative gearing and capital gains tax apply from mid-2027, which means the timing of your purchase and the type of property you buy can affect your long-term tax position.

Other claimable expenses include property management fees, council rates, insurance, repairs, and depreciation on fixtures and fittings. The structure of your loan doesn't change what you can claim, but it does affect how much interest you're paying and therefore how much you can deduct.

Refinancing to Change Your Loan Structure

Your loan structure doesn't have to stay the same for the life of the loan. Refinancing lets you move from fixed to variable, variable to split, or adjust the size of each portion in a split loan.

Investors often refinance when a fixed rate expires, when they want to access equity for another purchase, or when they need to adjust their loan features to suit a change in strategy. If you've been on a fixed rate for three years and now want access to an offset or the ability to make extra repayments, refinancing to a variable or split structure gives you that flexibility.

Refinancing can also allow you to consolidate multiple investment loans or release equity from one property to fund the deposit on another. If you're looking to buy your first investment property or add to an existing portfolio, refinancing your current property can unlock funds without needing to save a full deposit from scratch.

If you're planning to refinance, it's worth reviewing your current loan at least three months before any fixed rate expires. This gives you time to compare loan options, understand any discharge fees or break costs, and move to a new lender if the rate or features justify the switch.

Loan to Value Ratio and How It Affects Your Investment Loan Options

Your loan to value ratio, or LVR, is the percentage of the property's value that you're borrowing. If you're borrowing 80% of the property's value, your LVR is 80%. This figure affects both the interest rate you're offered and whether you'll need to pay Lenders Mortgage Insurance.

Most lenders offer their most competitive investor interest rates at 80% LVR or below. If you're borrowing more than 80%, LMI usually applies, and your rate may be slightly higher. LMI protects the lender if you default, but it's a cost you pay upfront or capitalise into the loan.

Some lenders offer rate discounts for lower LVRs, so if you're able to contribute a larger investor deposit, you may access a lower rate on either a fixed or variable loan. The LVR also affects your borrowing capacity for future purchases. If you're holding a property in Eltham at 70% LVR, you may be able to leverage equity from that property to fund your next investment without needing to sell.

If you're refinancing or purchasing in Eltham and the property has increased in value since you bought it, your LVR may have improved, which can open up lower rates or the ability to remove LMI from your loan structure.

Choosing the Right Structure for Your Investment Goals

The loan structure that suits your investment property depends on whether you're focused on cash flow, capital growth, portfolio expansion, or a combination of all three.

If you're holding the property long-term and want to minimise repayment volatility, a fixed rate or a split with a larger fixed portion may suit. If you're planning to refinance within a few years, pay down debt faster, or use offset accounts to manage surplus cash, a variable rate or a split with a larger variable portion is likely more appropriate.

For investors in Eltham who are also looking at properties in nearby suburbs like Montmorency, Diamond Creek, or Greensborough, a split loan can provide the stability to hold one property while keeping the flexibility to act on the next opportunity.

Call one of our team or book an appointment at a time that works for you. We'll walk through your current position, your investment goals, and the loan structure that aligns with where you're heading next.

Frequently Asked Questions