Everything you need to know about Fixed, Variable and Split Investment Loans

Fixed, Variable or Split: What Actually Matters for Your First Investment Loan

You're probably weighing up whether to lock in your rate, leave it floating, or split the difference. The decision comes down to cash flow predictability versus flexibility, and whether you're holding the property long-term or flipping it in a few years.

Variable rates move with the market. Fixed rates don't. A split loan gives you both. But the choice isn't just about interest. It's about prepayment rules, offset accounts, portability, and whether you're planning to refinance, sell, or pull equity out down the track. Most plumbers we talk to underestimate how much their plans will change once they've held a rental for 12 months.

How Variable Rate Investment Loans Work

A variable rate investment loan adjusts when lenders change their rates. Your repayments go up or down accordingly. Most variable loans come with an offset account, unlimited extra repayments, and the ability to redraw what you've paid ahead. That matters if you're using the property to build equity and want to access it later without refinancing.

Consider a plumber who bought a two-bedroom unit as a rental and wanted the option to sell within three years if the market turned. A variable loan meant no break costs when they sold 18 months later, and the offset account let them park job payments and reduce interest without locking the cash away. The rate moved twice during that period, once up and once down, but the flexibility to exit cleanly was worth more than rate certainty.

Variable loans also let you switch products or refinance without penalty. If you're building a portfolio and expect to refinance your investment loan or pull equity for a second purchase, a variable structure won't hold you back.

How Fixed Rate Investment Loans Work

A fixed rate investment loan locks your interest rate for a set period, usually one to five years. Your repayments stay the same regardless of what the market does. Most fixed loans don't offer offset accounts, and you're typically capped at paying an extra $10,000 to $30,000 per year without triggering break costs.

If you exit a fixed loan early by selling, refinancing or paying it out, the lender may charge a break cost. The cost depends on the difference between your fixed rate and the lender's current wholesale rate, the time left on your fixed period, and your remaining loan balance. It can be zero if rates have risen since you fixed, or it can run into thousands if rates have dropped.

Fixed loans suit investors who want predictable cash flow and don't plan to touch the loan until the fixed term ends. They don't suit plumbers who might sell, renovate or pull equity within a few years. The lack of offset access also means you can't reduce interest by parking income in an account linked to the loan.

How Split Loans Work for Property Investors

A split loan divides your borrowing into two portions. One portion is fixed, the other is variable. You choose the split, commonly 50/50 but it can be any ratio. Each portion has its own interest rate, repayment schedule, and fee structure.

The fixed portion gives you predictable repayments on part of your debt. The variable portion gives you offset access, redraw, and the ability to make unlimited extra repayments. You can also prepay or refinance the variable portion without break costs, while the fixed portion stays locked.

In our experience, a 60/40 or 70/30 variable-heavy split works well for plumbers who want some rate protection but also need flexibility to access equity or sell within a few years. The fixed portion acts as a buffer against rate rises, and the variable portion keeps your options open.

Interest-Only Versus Principal-and-Interest for Investment Loans

Interest-only repayments mean you pay only the interest each month and don't reduce the loan balance. Principal-and-interest repayments pay down the loan over time. Most lenders allow interest-only periods of one to five years on investment loans, after which the loan reverts to principal-and-interest.

Interest-only reduces your monthly outgoings and frees up cash flow, which matters if the rent doesn't cover all your costs. It also maximises your tax deduction, because all of your repayment is interest and therefore deductible. But you're not building equity through repayments, only through capital growth.

Principal-and-interest costs more per month but reduces your debt. If you're planning to hold the property long-term or you want to pay it down before retirement, principal-and-interest makes sense. If you're focused on building a portfolio quickly and using equity to fund the next purchase, interest-only gives you more breathing room.

You can combine interest-only with fixed, variable or split structures. A common setup is interest-only on the variable portion and principal-and-interest on the fixed portion, or vice versa. The structure you choose depends on your cash flow, your tax position, and whether you're planning to hold or sell.

What Changed with Investment Loan Tax Rules from Mid-2026

From the 2027-28 financial year, losses on established residential investment properties purchased after 12 May 2026 can only be offset against income from other residential properties, not against your plumbing income. Properties you owned or had under contract by that date are grandfathering, and new builds purchased after that date are exempt.

If you're looking at buying your first investment property and it's an established dwelling, you won't be able to negatively gear it against your wages from the 2027-28 year onward. Losses still accrue and can be carried forward to offset future rental income or capital gains on residential property, but they won't reduce your annual tax bill in the same way.

New builds, including dwellings built on vacant land or properties where the dwelling count increases, retain full negative gearing. If you're weighing up an established unit versus a house-and-land package, the tax treatment now tips the scales. Capital gains tax changes from 1 July 2027 also mean new builds get a choice between the old 50 per cent discount and the new indexed cost base with a 30 per cent minimum rate.

These changes don't affect variable versus fixed. They affect what you buy and when. If you're buying established property as an investment, do it with your eyes open about the tax position.

Refinancing, Selling or Pulling Equity: What Each Loan Type Allows

Variable loans let you refinance, sell or access equity at any time without penalty. Fixed loans don't. Split loans give you partial flexibility, depending on how much is variable.

If you want to pull equity out to fund a second purchase, you'll either need to refinance or apply for a separate top-up. With a variable loan, that's straightforward. With a fixed loan, you'll pay break costs unless you wait until the fixed term ends. With a split loan, you can pull equity from the variable portion and leave the fixed portion untouched.

We regularly see plumbers who locked in a five-year fixed rate, then wanted to buy a second property 18 months later and found they couldn't access their equity without a five-figure break cost. If you're serious about expanding your property portfolio, don't lock yourself in unless you're certain you won't need that equity before the term ends.

Which Structure Works if You're Holding Long-Term

If you're buying a rental to hold for 10 or 15 years and you're not planning to touch it, a split loan with a moderate fixed portion gives you stability without locking you out completely. You can fix 40 to 50 per cent for three to five years, keep the rest variable with offset access, and reassess when the fixed term ends.

Interest-only makes sense for the first few years if cash flow is tight or you're building a second deposit. Switch to principal-and-interest once your income increases or the rent covers more of the cost. You'll want access to equity release as the property grows in value, so keep at least half the loan variable or be prepared to refinance when the fixed term ends.

Long-term investors benefit most from flexibility. Rates will move, your circumstances will change, and the tax rules might shift again. A structure that lets you adapt without paying thousands in break costs or refinancing fees will outperform a locked-in rate over a decade.

Should You Use an Offset Account on the Variable Portion

Yes. An offset account linked to the variable portion of your investment loan reduces the interest you're charged without reducing your tax deduction. The loan balance stays the same, so your deductible interest stays the same, but the interest calculation is based on the loan balance minus the offset balance.

If you've got $20,000 sitting in the offset and your loan balance is $400,000, you're only charged interest on $380,000. That saves you interest and keeps your cash accessible. You can pull it out any time without reapplying or triggering a redraw issue.

Most plumbers use the offset to park income between jobs, tax refunds, or savings for the next deposit. It's a holding account that works for you while you're not using the cash. Fixed loans almost never come with offset accounts, which is another reason to keep at least part of your loan variable.

Call one of our team or book an appointment at a time that works for you

If you're weighing up fixed, variable or split structures for your first or next investment loan, talk to someone who works with plumbers every day. We'll run the numbers based on your actual income, the property you're looking at, and what you're planning to do in the next few years. Call one of our team or book an appointment at a time that works for you.

Frequently Asked Questions