Most landscapers looking at investment property go straight for a three or five-year fixed rate because it feels safer.
It's not. Fixed terms on investment property come with break costs that can wipe out years of rate savings if you need to sell, refinance, or pay down debt ahead of schedule. Since May last year, the capital gains and negative gearing changes mean more investors are rethinking their hold strategy mid-term, and that's where long fixed terms become expensive.
Fixed Rate Terms on Investment Property Work Differently
A fixed rate on an investment property locks your interest rate for a set period, usually one to five years. During that time, your repayments stay the same regardless of what variable rates do. That sounds like certainty, but it's conditional certainty. If you need to exit the loan before the fixed term ends, you'll be charged break costs. Those costs are calculated based on the difference between your fixed rate and the lender's current wholesale funding rate. If rates have dropped since you locked in, you'll pay the lender back for the revenue they're losing.
Consider a landscaper who fixed a $600,000 investment loan in early 2025 at 6.2% for five years. Twelve months later, rates have fallen and they want to sell the property to consolidate and buy a larger site with a house and shedding. The break cost comes back at $22,000. That's more than two years of projected rental income, gone before settlement.
The Three-Year Term Feels Like a Compromise But Usually Isn't
Three years sits between the flexibility of one year and the perceived safety of five. It's the most common fixed term landscapers choose for investment loans, but it's rarely the right one. A three-year fixed rate gives you slightly lower repayments than a variable rate if the market stays flat or rises. If rates fall, you're stuck. If your business has a strong year and you want to throw $50,000 at the loan, you can't without triggering break costs. If the property doesn't perform and you want to sell, same problem.
In our experience, investors who fix for three years do it because they're trying to avoid a decision. They don't want the exposure of variable, but they're not confident enough to lock in for five. The result is a loan structure that doesn't suit either scenario. You're not protected if rates spike because three years isn't long enough to ride out a full cycle, and you're not flexible enough to respond if your circumstances or the property's performance changes.
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One-Year Fixed Terms Give You a Rate Hedge Without the Lock-In
If you're going to fix part of an investment loan, one year is the only term that makes sense for most landscapers. You get a small buffer against rate rises, and if you need to sell or refinance within that twelve months, the break cost is usually negligible because the remaining term is so short. At current variable rates, a one-year fixed rate sits roughly in line with variable or slightly below it, depending on the lender. You're not locking in a huge discount, but you're not locking in huge risk either.
A one-year fixed term works well if you're buying a property you're confident about but want to keep your options open in case the tenancy doesn't work out or your business needs change. It also works if you're planning to review your entire loan structure in the next twelve to eighteen months, such as after the capital gains changes take effect from July next year. You can lock in a known repayment for the short term without committing to a structure that might not suit your tax position or portfolio strategy once the new rules bed in.
Fixed Terms and Interest-Only Periods Don't Always Line Up
Most landscapers structure investment loans with an interest-only period to keep repayments lower and improve cash flow. If you're fixing the rate, you need to make sure the fixed term doesn't run longer than the interest-only period. If your interest-only period ends two years into a five-year fixed term, your repayments jump because you're now paying down principal as well, but you're still locked into the fixed rate. You can't refinance to extend the interest-only period without paying break costs.
We regularly see this with landscapers who fixed for five years on a five-year interest-only loan and then wanted to extend the interest-only period after three years once their business picked up and they were ready to buy another property. The lender won't extend interest-only mid-term on a fixed loan, so the choice is either copping the higher repayments or refinancing and paying break costs. Both options hurt.
Rate Movements Since the Budget Have Made Fixed Terms Riskier
Rates have come down since the capital gains and negative gearing changes were announced. That's made fixed rates look more attractive on paper, but it's also increased the chance you'll get caught with break costs if you need to exit early. If you locked in a five-year fixed rate six months ago and rates have dropped 0.5% since then, your break cost on a $500,000 loan could sit around $15,000 to $18,000 depending on the lender's calculation method.
The bigger issue is that more landscapers are now questioning whether they'll hold established investment property long-term given the changes to negative gearing and capital gains that start from July next year. If you're unsure whether you'll keep the property past the next two or three years, locking in a five-year fixed rate now is a gamble. If you decide to sell or switch strategy, the break cost becomes a sunk cost that chips away at whatever equity you've built.
Split Loans Let You Fix Part Without Locking the Whole Amount
If you want some rate certainty but don't want to lock yourself in completely, a split loan structure works. You fix half the loan for one year and leave the other half variable. The variable portion gives you the ability to make extra repayments, redraw if needed, and refinance or sell without significant break costs. The fixed portion gives you a known repayment on half the debt, which can help with budgeting if your income fluctuates seasonally.
Splitting also means you're not trying to pick the perfect moment to lock in. If rates rise, half your loan is protected. If rates fall, half your loan benefits. You're not maximising either outcome, but you're not getting hammered by either one either. For landscapers who want to expand their property portfolio over the next few years, a split structure keeps enough flexibility to refinance or restructure when the next opportunity comes up.
Most Landscapers Should Default to Variable on Investment Property
Variable rates on investment property give you the flexibility to sell, refinance, or pay down debt without penalty. You can make extra repayments when work is steady and pull money back out through redraw if you need it for equipment, a ute upgrade, or another deposit. If rates drop, your repayments drop. If you want to move lenders to get access to more equity for the next purchase, you can do it without waiting for a fixed term to expire or paying break costs.
The argument for fixing usually comes down to fear of rate rises, but if rates do rise, you're better off dealing with higher repayments on a variable loan than being stuck in a fixed loan that doesn't suit your situation anymore. The cost of flexibility is worth more than the cost of certainty when you're building a portfolio, especially in a market where the tax treatment of investment property is changing and your hold strategy might need to shift with it.
Call one of our team or book an appointment at a time that works for you. We'll walk through your current loan structure, your business cash flow, and whether fixing any portion of your investment loan actually makes sense for where you're headed.
Frequently Asked Questions
Should I fix my investment loan rate for three or five years?
Most landscapers should avoid fixing investment loans for three or five years because break costs can wipe out any savings if you need to sell, refinance, or change your strategy before the term ends. A one-year fixed term or variable rate gives you more flexibility without locking you into long-term costs.
What happens if I need to sell my investment property during a fixed rate term?
You'll pay break costs to exit the fixed rate early. Those costs are calculated based on the difference between your locked-in rate and current wholesale rates. If rates have dropped since you fixed, the break cost can be tens of thousands of dollars.
Can I make extra repayments on a fixed rate investment loan?
Most lenders cap extra repayments on fixed rate loans at around $10,000 to $30,000 per year. Any amount above that triggers break costs, which limits your ability to pay down debt when business is strong.
Does a split loan work for investment property?
Yes. Splitting your loan so half is fixed for one year and half is variable gives you some rate certainty while keeping flexibility to refinance, sell, or make extra repayments without major break costs.
Why is a one-year fixed term better than three or five years for investment loans?
A one-year fixed term gives you a short-term rate buffer without locking you in long-term. If you need to exit early, break costs are usually minimal because the remaining term is so short, and you can reassess your strategy each year as your business and the market change.
