Proven Tips to Use Fixed Rates and Offsets on Investment Loans

Fixed rate investment loans don't come with offset accounts.

That's the short answer, and it catches out plenty of painters looking to lock in a rate while keeping the flexibility of an offset. The two features sit on opposite sides of the fence. A fixed rate gives you certainty over your repayment for a set period, typically one to five years. An offset account lets you park your cash against the loan balance and reduce the interest you're charged daily. Lenders don't offer both on the same loan portion because an offset undermines the locked-in profit they make from a fixed rate.

If you want both features on an investment loan, you'll need to split the loan. That means fixing part of the balance and leaving the rest on a variable rate with an offset attached. The decision isn't just about preference. It changes how much tax you can claim, how much flexibility you have during the fixed period, and what happens if you need to sell or refinance before the fixed term ends.

Why Investment Loans Don't Pair Fixed Rates With Offsets

Lenders price fixed rates by locking in their funding cost and adding a margin. When you fix, the lender knows exactly what interest you'll pay for the term, and they hedge that risk in the wholesale market. An offset account changes your daily loan balance, which changes the interest calculation. If your offset balance goes up one month and down the next, the lender can't hedge accurately. So they don't allow it.

On a variable rate portion, the offset works because the lender can adjust your rate whenever funding costs move. You get the flexibility to drop cash into the offset and reduce your interest bill without changing the loan structure.

For a painter running a business, this distinction matters more than it does for a wage earner. If you've just finished a few big commercial jobs and you're holding $30,000 in the offset, that money reduces your variable loan balance daily. The interest you don't pay isn't deductible because you didn't pay it. But if you pull that cash out to buy a van or cover a quiet stretch, the full loan balance comes back into play immediately and so does the deductible interest.

How a Split Loan Lets You Use Both Features

A split loan divides your total borrowing into two or more portions. One portion sits on a fixed rate. The other sits on a variable rate with an offset account attached. You choose the split percentage when you settle the loan or when you refinance.

Consider a painter who borrows $500,000 to buy a rental property. They might fix $300,000 at a locked rate for three years and leave $200,000 on a variable rate with a $200,000 offset limit. If they keep $40,000 in the offset, they're only paying interest on $160,000 of the variable portion, plus the full $300,000 on the fixed portion. The total interest charged is lower than it would be without the offset, but the fixed portion remains untouched.

The benefit is twofold. The fixed portion protects you if variable rates climb during the term. The variable portion with the offset gives you a place to park your business income between jobs, your tax savings, or money you're holding for the next vehicle or equipment purchase. You're not locking away liquidity you might need in three months, but you're also not exposing the entire loan to rate movements.

Most lenders let you split a loan into up to five portions, though two or three is more common in practice. Each split can have a different rate type, term, and repayment structure. You can fix one portion on interest-only and another on principal-and-interest, or fix two portions with different end dates so they don't all expire at once. The admin is minimal once it's set up. Each split just appears as a separate account in your online banking, and you make separate payments to each.

What Happens If You Break a Fixed Rate Early

Breaking a fixed rate loan before the term ends usually triggers a break cost. That's the fee the lender charges to cover the difference between the rate you're paying and the rate they can now lend that money at. If rates have fallen since you fixed, the break cost can run into the thousands. If rates have risen, the break cost might be zero or even a small refund, though refunds are rare.

Break costs aren't negotiable. They're calculated using the lender's wholesale funding cost, the remaining term, and the amount you're paying out. Some lenders publish their break cost formula, others don't. If you're thinking about selling the property or refinancing before the fixed term ends, ask your broker to get a break cost estimate before you commit.

On a split loan, you only pay a break cost on the fixed portion if you discharge the entire loan. If you're refinancing and the new lender allows you to port the fixed rate across, you might avoid the cost altogether, though porting isn't common on investment loans. More often, you'll pay the break cost and refinance the whole amount onto a new loan structure.

A painter we work with split a $450,000 loan 50/50 between fixed and variable. Eighteen months into a three-year fixed term, they wanted to refinance to access equity for a second property. Variable rates had dropped, and the break cost on the $225,000 fixed portion came back at $8,400. They went ahead because the equity release and the lower rate on the new loan justified the cost, but it's a real number that needs to sit in your decision.

Fixed Rate Investment Loans and Interest-Only Repayments

Most investment loans are written on an interest-only basis for the first one to five years, then revert to principal-and-interest. Fixing a portion of an interest-only loan doesn't change the repayment type. You're still only paying interest on the fixed portion during the fixed term. Once the fixed term ends, that portion reverts to the variable rate, and if the interest-only period is still running, it stays interest-only. If the interest-only period has ended, the loan converts to principal-and-interest regardless of the rate type.

The appeal of interest-only repayments on an investment loan is that you're maximising your deductible interest while keeping cash free for other purposes. Paying down principal on an investment loan doesn't reduce your tax deduction. It just shifts your cash into equity you can't spend without refinancing. For a painter building a portfolio or reinvesting into the business, that cash flow difference matters.

Some lenders cap the interest-only period on a fixed rate portion to match the fixed term. Others let you run interest-only for five years even if you're only fixing for two. Check the loan terms before you settle. If the interest-only period ends halfway through your fixed term, your repayments will jump, and you can't refinance without paying a break cost.

Using the Variable Portion and Offset for Business Cash Flow

The variable portion with an offset isn't just a place to park savings. It's a tool for managing uneven income and planned spending without losing deductibility on the investment loan.

If you're a painter and you bill $80,000 in August after finishing a school holiday repaint, that cash can sit in the offset and reduce your variable loan interest until you need it for wages, materials, or tax in September. You're not paying interest on that $80,000 while it's in the offset, so your net position is the same as if you'd paid down the loan temporarily. But when you pull the money out, the loan balance comes back to where it was, and the deductible interest resumes.

The offset also works if you're saving for another deposit. Instead of putting your savings into a separate account earning minimal interest that you'll pay tax on, you put it in the offset. The interest you save on the investment loan is worth more than the after-tax interest you'd earn elsewhere, especially when the loan rate is higher than the savings rate.

One thing to watch: only deposit money into the offset if it's not borrowed for private purposes. If you draw on a business line of credit and move that cash into your investment loan offset, the ATO will treat the interest on the line of credit as non-deductible because the purpose of the borrowing was to reduce interest on another loan, not to produce income. Keep the offset funded from genuine income or savings, and keep records if you're ever questioned.

Should You Fix 50/50 or Use a Different Split

There's no standard split that works for everyone. The right ratio depends on how much cash you expect to hold, how much rate protection you want, and how likely you are to sell or refinance before the fixed term ends.

If you're holding $50,000 to $100,000 in offset funds regularly and you want some rate certainty, fixing 60 to 70 per cent and leaving 30 to 40 per cent variable gives you coverage without locking up all your flexibility. If your business income is lumpy and you're regularly moving money in and out, a smaller fixed portion such as 40 per cent keeps more of the loan responsive to your offset balance.

If you're fixing primarily to protect against rate rises and you don't plan to keep much in the offset, you can fix a higher percentage or even the full amount on a variable loan without an offset. Just know that once it's fixed, you're committed to that rate and that repayment until the term ends or you pay the break cost.

Some brokers will suggest fixing in stages with different end dates, such as fixing one third for two years, one third for three years, and leaving one third variable. That spreads your risk so you're not exposed to a single rate environment when the whole loan comes up for renewal. It's more common on owner-occupied loans, but it works just as well on investment lending if you want that level of control.

What Changed in 2026 and What It Means for Painters Buying Investment Property

Negative gearing rules changed from 1 July 2027 under new legislation that passed in June 2026. If you buy an established rental property after 12 May 2026, you won't be able to offset the rental loss against your painting income from 1 July 2027 onward. The loss gets quarantined and can only be used against future rental income from any property you own, or against the capital gain when you sell.

Properties you already own, or properties you exchanged contracts on before 12 May 2026, stay under the old rules. You can still claim the full loss against your wage or business income.

The new rules don't apply to newly built properties that meet the definition in the legislation. If you're buying a new build, you can still negatively gear it the old way. That's pushed more investor interest toward new stock, but it also means established properties in suburbs with no new supply are now less attractive for buyers relying on a tax offset.

For a painter earning $90,000 and thinking about a rental property that might run a $10,000 annual loss, the difference is significant. Under the old rules, that $10,000 loss reduces your taxable income and saves you around $3,250 in tax. Under the new rules, you carry the loss forward but get no immediate tax benefit unless you own other rentals that are positively geared. That changes the cash flow equation and makes borrowing capacity tighter because the loss isn't offset by a tax refund.

If you're buying before 30 June 2027, the old rules still apply until that date, even if you bought after 12 May 2026. But from 1 July 2027, the quarantine starts. So if you're on the fence, settling before mid-2027 gives you one more year of full negative gearing.

Fixed rates don't change the tax treatment. Whether your loan is fixed, variable, or split, the interest is still deductible to the extent the property is rented or available for rent. The quarantine rule affects how you use the loss, not whether the interest itself is deductible.

If you're weighing up a property purchase now, talk through the numbers with your broker and your accountant before you commit. The loan structure matters, but the after-tax return matters more, and that calculation just got harder for anyone buying established stock.

Call one of our team or book an appointment at a time that works for you. We'll run the numbers on a split loan, show you what the offset saves in real terms, and make sure the loan structure fits how you actually run your business and hold your cash.

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