Unlock the secrets to Fixed, Variable & Split Loans

Choosing between a fixed, variable, or split investment loan will influence your repayment flexibility and your exposure to rate movements over the life of the property.

When you borrow for an investment property in Templestowe, the interest rate structure you select affects how much you can deduct at tax time, how often you can access redraw or offset features, and what happens if you decide to sell or refinance before the loan term ends. The decision is not about finding a universal answer but matching the loan structure to your personal circumstances and your broader property investment strategy.

Fixed Rate Investment Loans: Certainty and Constraints

A fixed rate locks your interest rate for a set period, usually between one and five years. You know exactly what your repayments will be during that period, which makes budgeting predictable and protects you if rates rise.

The constraint is inflexibility. Most fixed rate products limit or prohibit additional repayments beyond a small annual allowance, and many do not offer offset accounts. If you need to exit the loan early, whether through refinancing or selling the property, you may face break costs. Break costs are calculated based on the economic loss the lender incurs when you repay a fixed loan ahead of schedule, and they can be substantial if market rates have fallen since you fixed.

Consider an investor who purchased a four-bedroom house in Templestowe at the suburb's median of around $1,495,000 and fixed the investment loan at a rate that seemed attractive at the time. Two years later, variable rates dropped, and the investor wanted to refinance to access a lower rate and better offset features. The lender's break cost calculation came back at over $22,000 because wholesale rates had moved significantly. The investor chose to wait out the fixed term rather than pay the penalty, which delayed the restructure by another 18 months.

Fixed rates suit investors who value certainty over flexibility, particularly those with minimal surplus cash flow who cannot absorb unexpected rate increases. They are less suitable if you expect to receive lump sums, such as bonuses or property sale proceeds, that you would want to park in an offset account or apply as extra repayments.

Variable Rate Investment Loans: Flexibility and Market Exposure

Variable rate loans move in line with market conditions and lender pricing decisions. When rates fall, your repayments decrease. When rates rise, they increase. Most variable products allow unlimited additional repayments, full redraw access, and offset accounts that reduce the interest charged on your loan balance.

For investors, the offset account is particularly valuable. Any funds sitting in the linked transaction account reduce the daily interest calculation on your investment loan, which increases your tax-deductible interest expense relative to the principal being repaid. This is more tax-efficient than making extra repayments directly onto the loan, which reduces your deductible interest over time.

Templestowe's rental market, anchored by family tenants and professionals, produces rental income of around $940 per week for houses according to CoreLogic data from May 2026. With that level of rental income, many investors maintain a buffer in their offset account rather than paying down the loan, preserving the deduction while keeping funds accessible for future property purchases or renovations.

The exposure to rate movements is the trade-off. Between early 2025 and mid-2026, borrowers who held variable investment loans experienced several rate adjustments as lenders responded to shifts in funding costs and regulatory settings. Investors with thin cash flow felt those increases immediately. Those who had built offset balances or held other liquid assets absorbed the changes without stress.

Variable loans suit investors who want control, who expect to receive irregular income they can use to reduce interest costs, or who plan to expand their property portfolio and need the ability to refinance or restructure without penalty.

Split Loan Structures: Balancing Risk and Opportunity

A split loan divides your borrowing between a fixed portion and a variable portion. You nominate the split when you settle, commonly 50/50 but sometimes 70/30 or 60/40 depending on your risk appetite and cash flow.

The fixed portion gives you a floor of predictable repayments. The variable portion gives you access to offset and redraw features and protects you from being fully locked in if rates fall. If you want to make additional repayments or refinance part of the loan, you can do so on the variable portion without triggering break costs on the fixed side.

In a scenario where a Templestowe investor purchased a two-bedroom unit near Templestowe Village for around $1,000,000, they structured the $800,000 loan as $400,000 fixed and $400,000 variable. Rental income of approximately $710 per week covered most of the interest, and the investor directed surplus funds into the offset account linked to the variable portion. Eighteen months later, when a family inheritance provided an additional $80,000, the investor placed that into the offset as well. The variable portion was now effectively reduced by $80,000 in terms of daily interest, but the funds remained accessible. The fixed portion continued at the agreed rate, unaffected by subsequent rate movements, and no break cost applied because the investor had not exited that portion of the loan.

The split structure works well when you want partial certainty but are not prepared to forgo flexibility entirely. It is particularly suited to investors in suburbs like Templestowe, where property values are high and loan balances are significant, because even a modest offset balance on the variable portion can produce meaningful interest savings over time.

Interest-Only Repayments and Tax Efficiency

Most investment loans, regardless of whether they are fixed, variable, or split, can be structured as interest-only for an initial period, typically up to five years. During this period, you pay only the interest portion of the loan, which maximises your tax deduction and minimises your cash outlay.

For investors focused on building wealth through property, interest-only repayments preserve capital for future purchases. Paying down principal on an investment loan reduces your deductible interest without improving your net asset position if the property is appreciating. The cash you save by avoiding principal repayments can instead be directed into an offset account, used as a deposit for a second property, or retained as a financial buffer.

The City of Manningham, which includes Templestowe, has a well-established owner-occupier base and a median house price that sits above the Melbourne metropolitan figure. Investors in this area are typically focused on long-term capital growth rather than high rental yields, which makes interest-only structures more common. House yields in Templestowe sit at around 2.95% according to CoreLogic data from May 2026, which is below the metropolitan average but reflects the suburb's appeal to families and its proximity to quality schools, Westfield Doncaster, and the Eastern Freeway.

Serviceability and Debt-to-Income Limits

Lenders assess your ability to service an investment loan by adding a buffer of at least 3.0 percentage points to the loan product rate and calculating whether you can afford the repayments at that higher figure. This serviceability buffer has been in place since late 2021 and applies to all new investment loans.

From February 2026, lenders have also been required to limit the proportion of new investor loans they write to borrowers with a debt-to-income ratio of six times or greater. Up to 20 per cent of each lender's new investor lending can be made to borrowers above that threshold, but the majority must fall below it. This does not affect existing borrowers but does influence how much you can borrow when buying your first investment property or adding to your portfolio.

If you already own your home in Templestowe and are looking to purchase an investment property elsewhere, or if you are considering a second investment property in the area, your total debt across all loans is measured against your household income when determining how much additional borrowing capacity you have. A split loan structure does not change this calculation, but it may allow you to manage repayments more efficiently by keeping part of the loan variable and using offset to reduce interest costs without reducing the loan balance that lenders use for serviceability.

Refinancing Investment Loans and Rate Discounts

Most investment loans are written with an initial discount to the lender's standard variable rate or advertised fixed rate. Over time, that discount can erode as lenders reprice their back book or as new customer offers become more competitive. Refinancing allows you to reset your loan to current market pricing, access better features, or consolidate multiple loans.

When refinancing a fixed investment loan, you will need to consider whether the rate improvement and feature upgrade justify the break cost. When refinancing a variable loan, there is typically no exit penalty, although you may incur discharge fees from your current lender and application or valuation fees with the new one. If you are refinancing to release equity for a future purchase, that cost is usually absorbed into the new loan balance.

Templestowe's strong long-term capital growth, supported by the suburb's school zones, parkland along the Yarra River, and accessibility via Blackburn Road and the Eastern Freeway, makes it a location where investors often hold property for extended periods. Refinancing every few years to maintain competitive pricing and loan features is common practice in this market, particularly for investors with larger loan balances where even a small rate improvement produces significant annual savings.

If you are considering a loan structure for a new investment property, or reviewing the suitability of your existing investment loan, call one of our team or book an appointment at a time that works for you.

Frequently Asked Questions