Top Strategies to Use Fixed Rates and Offset Accounts

A fixed rate locks your repayments for a set period, and an offset account cuts the interest on your loan. Each suits a different type of investor, and you can sometimes combine them across a split loan.

If you are a property investor in the south-eastern suburbs, the choice between a fixed rate and an offset account comes down to one question. Do you want certainty on repayments, or flexibility with your cash? This article walks through how each one works so you can decide.

How Does a Fixed Rate Investment Loan Work?

A fixed rate investment loan holds your interest rate at one level for an agreed period, so your repayments stay the same until that period ends. Your lender then moves you onto its variable rate unless you refix or refinance.

The main trade-off is flexibility. Many fixed loans limit extra repayments, and some do not offer an offset account on the fixed portion. If you end the fixed term early, you may face break costs. Ask each lender how it calculates break costs and what the loan allows before you commit, because terms vary between lenders.

A fixed rate also does not shield you from the way lenders assess your borrowing. Banks must test your ability to repay at a rate at least 3.0 percentage points above the loan rate, so a fixed rate does not lift your borrowing power. Our borrowing capacity page explains what shapes your limit.

What Is an Offset Account on an Investment Loan?

An offset account is a transaction account linked to your loan. Interest is charged on the loan balance minus the money sitting in the account, so a higher offset balance means less interest.

The loan balance itself does not change. That matters in two ways. First, an offset balance does not reduce the loan amount when a lender works out your loan-to-value ratio. Second, because the interest you incur is lower, the interest you can claim as a tax deduction is lower as well. You still keep the cash, which is the point of an offset.

The trade-off is that you need spare cash to make it worthwhile, and some loans charge a package or account fee for the feature. Some offsets are full and some are partial, so check how much of your balance counts.

One point needs care with tax. Interest is deductible based on how borrowed money is used. If you redraw extra repayments from your loan for private use, that portion of interest may stop being deductible. The ATO has not confirmed offset withdrawals in the same way, so speak with your accountant before you use either feature to fund personal spending.

Fixed Rate or Offset Account: Which Suits Your Investment Strategy?

A fixed rate suits investors who want predictable repayments, and an offset suits investors who hold spare cash and want flexibility. A split loan can give you some of both.

Consider an investor in Bentleigh who is buying a unit and borrowing at the 6.75% p.a. illustrative rate. Say the loan is $500,000 on interest-only repayments. Interest for the year is about $33,750, or roughly $2,812 a month. The investor also holds $50,000 in savings as a buffer for repairs and vacancies.

The investor splits the loan. Half, $250,000, goes on a fixed rate so half of the repayments are certain. The other $250,000 stays variable with an offset account attached, and the $50,000 buffer sits there. At the same illustrative rate, interest on the variable half drops from about $16,875 a year to about $13,500, a saving of $3,375. The buffer is still available when a repair bill arrives.

The outcome is a mix of certainty and access to cash. The cost is that the fixed half has less room for extra repayments, and if rates fall the fixed half does not follow them down. If the investor needs to sell or refinance during the fixed term, break costs may apply. Whether a lender lets you attach an offset to a split portion varies, so confirm this before you apply.

Interest-Only or Principal and Interest: Does It Change the Choice?

Interest-only repayments keep your payments lower for a set period, but they do not reduce your loan balance. Principal and interest repayments pay down the debt as well.

The interest-only period is usually one to five years. When it ends, you move to principal and interest repayments over the remaining term, so the later repayments are higher. A 30-year loan with a five-year interest-only period has 25 years left to repay the principal. Lenders assess your ability to meet that higher repayment, so interest-only does not give you a larger loan.

Only the interest portion of a repayment is tax deductible, on either structure. The principal portion is not. Your accountant can tell you how this fits your own tax position.

You can test different repayment levels with our mortgage repayment calculator.

Negative Gearing Changes Investors Should Know About

From the 2027-28 income year, net rental losses on established residential properties bought after 7:30pm AEST on 12 May 2026 can only be deducted against other residential property income. Properties held at that time keep their current treatment, as do eligible new builds.

This changes how a loss is used. It does not change whether the interest on your loan is deductible. If you plan to buy an established property, your holding costs and cash flow matter more, because a loss may no longer reduce the tax on your salary. A cash buffer in an offset account can help you carry that cost. Check how the rules apply to your purchase with your accountant before you sign a contract.

Matching Your Loan Structure to Your Plan

The right structure depends on how long you plan to hold, how much cash you keep on hand, and whether you may refinance. If you may sell or refinance soon, a long fixed term carries more risk. If your spare cash is small, an offset helps less.

If you already hold an investment loan, a loan health check can show whether your structure still suits you. If your fixed term is ending, our fixed rate expiry page covers your options. You can also read more about investment loans from lenders across Australia.

Call one of our team or book an appointment at a time that works for you. We will compare fixed, variable and split options for your situation and explain the costs of each.

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