Why Fixed Rate Investment Loans Cost More Than You Think

Fixed rate investment loans come with three layers of cost that most lenders don't spell out in the same sentence: upfront application fees, a rate premium over variable, and break costs if you exit early. Each one chips away at your return, and the combination can wipe out the stability you're paying for.

Application Fees on Investment Loans

Most lenders charge between $300 and $600 to process an investment loan application, whether you're fixing the rate or not. Some add a separate valuation fee of $150 to $300, others bundle it. Either way, you're paying before settlement, and if you're borrowing at higher LVR, you'll also carry the cost of LMI, which can run into the thousands depending on your deposit size and the lender's calculation. LMI is not refundable if you refinance.

Consider a concreter buying a two-bedroom unit as a rental. Purchase price sits at $450,000, deposit is $90,000, so the loan amount is $360,000 at 80 per cent LVR. Application fee is $600, valuation is $250, and because the LVR is at 80 per cent, LMI doesn't apply. Total upfront cost before settlement: $850. That's before legal fees, building inspection or any conveyancing work. If the same borrower had put down a 15 per cent deposit instead, LMI might add another $8,000 to $10,000 to the upfront bill.

You can sometimes add these costs to the loan amount, but doing that increases your borrowing and your interest expense over the life of the loan. Pay upfront if your cash flow allows it.

The Rate Premium You Pay to Lock In

Fixed rates on investment loans typically sit 0.2 to 0.5 percentage points higher than the equivalent variable rate from the same lender, depending on the term you choose. The longer the fixed term, the wider the gap tends to be. Lenders price in their cost of funds and their expectations about rate movements. You're paying for certainty, but you're also paying more per month from day one.

On a $360,000 loan, a 0.3 percentage point difference between fixed and variable translates to roughly $90 per month, or just over $1,000 per year. Over a three-year fixed term, that's $3,200 in additional interest before you factor in any other fees. If rental income doesn't cover the gap, you're funding it from other income, and that affects your cash flow and your ability to service future borrowing.

That premium also narrows your deductible interest if you're negatively gearing the property under current rules. The higher the rate, the bigger the loss, but the loss only offsets other income if the property was held before 12 May 2026 or qualifies as a new build. If you bought an established property after that date, losses from the 2027-28 income year onward can only offset income from other residential property, not your concreting income.

Break Costs and How They're Calculated

Break costs apply when you repay a fixed rate loan before the end of the fixed term. The lender calculates the cost based on the difference between the rate you're paying and the rate they can now lend that money at, multiplied by the time left on your fixed period and the loan balance.

If you fixed at 6.5 per cent for three years and rates have since dropped to 5.8 per cent, the lender has lost income because they can't replace your loan at the same rate. They charge you the present value of that lost income. If rates have risen since you fixed, the break cost is usually zero, because the lender can re-lend the funds at a higher rate.

In our experience, concreters who lock in a fixed rate and then need to sell the property, refinance for better terms, or access equity for another purchase often underestimate how much the break cost will be. On a $360,000 loan with two years left on a fixed term and a 0.7 percentage point rate difference, the break cost can land anywhere between $4,000 and $6,000, depending on how the lender discounts future losses. Some lenders use a wholesale rate, others use a published rate, and the calculation method isn't always disclosed upfront.

You can request a break cost estimate from your lender at any time, but the figure is only valid for a short window, usually a few days, because it depends on current wholesale rates.

Ongoing Account Fees During the Fixed Period

Most investment loans carry a monthly account-keeping fee, typically between $10 and $15 per month, or $120 to $180 per year. Some lenders waive this fee if you hold a package or if your loan balance exceeds a certain threshold, but that's not standard across the board. The fee applies regardless of whether your rate is fixed or variable, but it's another cost to account for when you're calculating the true expense of holding the loan.

If you're running interest-only repayments during the fixed period, which is common for investors looking to maximise cash flow and tax deductions, the monthly fee doesn't reduce your loan balance. It just adds to the cost of holding the property. Over a five-year interest-only period, $15 per month adds up to $900 in fees alone, separate from interest.

Some lenders also charge a settlement fee at the time the loan is drawn down, usually between $150 and $300. Others charge an annual package fee if you've bundled your investment loan with an offset account or other features. Read the fee schedule in the loan contract, not just the comparison rate, because the comparison rate doesn't capture break costs or LMI.

Why Offset Accounts Usually Aren't Available on Fixed Investment Loans

Most lenders don't offer offset accounts on fixed rate investment loans. If they do, the rate is often higher again, or the offset percentage is capped. This removes one of the main levers for managing cash flow and reducing interest without making extra repayments that you can't get back.

Without an offset, any surplus cash you want to park against the loan has to go into a redraw facility, and redraw on a fixed loan is usually either blocked entirely or capped at a low annual limit. That means if you have a strong month and want to throw an extra $5,000 at the loan, you might not be able to pull it back out if work slows down or a tenant leaves and you need to cover holding costs.

For concreters with variable income depending on the season or the size of jobs coming through, that lack of flexibility can be a real problem. Variable rate investment loans generally allow full redraw and unlimited offset, which makes them more practical if your cash flow moves around. The rate might be less predictable, but the liquidity is worth more than the fixed rate in plenty of situations.

If you're weighing up a fixed rate investment loan and you're not confident your income and rental yield will stay steady for the whole fixed term, the lack of offset and redraw should factor heavily into the decision. You can read more about structuring investment loans for flexibility at Investment Loans for Tradies.

Split Loans as a Middle Ground

Some concreters split their investment loan, fixing part and leaving part variable. That gives you partial protection against rate rises while keeping access to offset and redraw on the variable portion. The split ratio depends on your risk appetite and how much cash flow certainty you need.

A 50/50 split on a $360,000 loan means $180,000 fixed and $180,000 variable. If rates rise, the fixed portion stays steady. If rates fall, the variable portion drops, and you're not locked into the higher rate across the full balance. You also keep the ability to make extra repayments or access surplus funds from the variable portion without triggering break costs.

The downside is you'll often pay two sets of account-keeping fees, one for each split, and not all lenders price split loans competitively. Some apply a higher rate to each portion than they would to a standalone loan of the same type. You'll need to compare the total cost of the split structure against a single fixed or variable loan before you commit.

If you're planning to access equity in the next few years to fund another property or a business purchase, a split loan can give you more room to move without paying a large break cost on the full loan balance. You can find more on equity access strategies at Equity Release Loans for Tradies.

What the Legislation Changes Mean for Investment Loan Costs

From the 2027-28 income year, losses on established residential investment properties bought after 12 May 2026 can only be offset against income from other residential properties, not against wage or business income. That changes the value of the interest deduction for concreters who were relying on negative gearing to reduce their tax.

If you're fixing a rate and the interest cost is high, the tax benefit of that interest shrinks unless you have other rental income to offset it against. Excess losses can be carried forward, but they don't deliver a cash flow benefit in the year you incur them. That makes the rate you pay and the fees you carry more important, because you're funding more of the holding cost from after-tax income.

New builds remain exempt, so if you're buying a property that qualifies as an eligible new build under the legislation, you can still deduct losses against all income, including your concreting earnings. The property needs to be newly constructed on vacant land or part of a development that increases the dwelling count. Knock-down rebuilds and renovations don't count.

For more on structuring finance as a self-employed concreter, see Finance for Tradies.

When a Fixed Rate Investment Loan Actually Makes Sense

Fixed rates suit concreters who need predictable repayments, have limited surplus cash flow, and are confident they won't need to sell, refinance or access equity during the fixed term. If rental income is tight and a rate rise would push the property into unaffordable territory, fixing buys you time to build equity and increase rent without worrying about repayment jumps.

They don't suit concreters who want flexibility, plan to pay down the loan quickly, or expect their income or circumstances to change in the next few years. The cost of exiting early usually outweighs the benefit of rate protection, and the lack of offset and redraw makes it harder to manage variable income.

If you're not sure whether a fixed rate fits your situation, a broker who works with self-employed tradies can model the scenarios and show you the total cost over different timeframes. For specialised home and investment loan advice, see Home Loans for Concreters.

Call one of our team or book an appointment at a time that works for you. We'll walk through the numbers, the fees, and the features that matter for your setup, and make sure the loan you're signing up for actually does what you need it to do.

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