Unlock the Secrets to Fixed Rates & Offsets

Fixed Rate Investment Loans Don't Allow Standard Offset Accounts

Fixed rate investment loans typically don't allow offset accounts during the fixed period. When you lock in a fixed interest rate, the lender guarantees that rate for the agreed term, usually between one and five years. Offset accounts introduce uncertainty into this arrangement because the balance changes daily, which means the lender can't accurately predict their return. Most lenders therefore exclude offset functionality from fixed rate products, though some offer partial offsets with restrictions or allow offsets on the variable portion of a split loan.

Consider a property investor who purchased a two-bedroom apartment in Footscray with a deposit of 25% and an investment loan amount of $480,000. They wanted rate certainty for three years to lock in repayments while the property seasoned, but they also had $60,000 in savings they wanted working for them. With a fully fixed loan, that $60,000 would sit in a savings account earning minimal interest while they paid the full interest charge on $480,000. The alternative was to fix a portion of the loan and leave the remainder variable with an offset attached.

Why Investors Choose Fixed Rates Despite Losing Offset Access

Investors fix their investment loan interest rate to gain certainty over holding costs. When you're relying on rental income to cover most of the loan repayment, knowing exactly what that repayment will be for the next few years removes one variable from your cashflow planning. This matters especially if you're negatively geared and claiming the shortfall as a tax deduction. You can budget precisely for how much you'll need to contribute each month after rental income and tax benefits.

Fixed rates also protect you if interest rates rise during the fixed period. If variable interest rates climb by 1% or more, your repayment stays unchanged, which can translate to thousands of dollars in saved interest over the fixed term. The trade-off is inflexibility. If rates fall, you're locked in at the higher rate. If you want to refinance or sell, you may face break costs. And you won't have access to an offset account to reduce interest charges on the fixed portion.

Split Loans Let You Keep Some Offset Functionality

A split loan divides your total investment loan amount between fixed and variable portions. You might fix 60% at a set rate for three years and leave 40% variable with an offset account attached. The variable portion behaves like any standard variable rate loan: you can make extra repayments, redraw funds if the loan allows, and link an offset account that reduces the interest calculated daily on that portion.

In the Footscray example, the investor split their $480,000 loan into $288,000 fixed and $192,000 variable. They parked their $60,000 savings in an offset account linked to the variable portion. That offset reduced the interest charged on $192,000 down to $132,000, saving them around $230 per month at current variable rates. Meanwhile, the fixed portion gave them certainty on the majority of their holding costs. This approach balanced rate protection with some flexibility to use their savings tax-efficiently.

When structuring a split, think about how much cash reserve you typically hold and how much rate certainty you need. If you keep a large offset balance, a higher variable split makes sense. If your priority is locking in repayments and you don't have significant savings to offset, a larger fixed portion may suit better. Keep in mind that splitting a loan can sometimes mean paying two sets of fees, depending on the lender.

Interest Only Loans and Offset Accounts Work Differently

Most investment loans are structured as interest only for a set period, often five years. During that time, you only pay the interest charge each month, not the principal. This keeps your repayments lower and maximises your tax deductions, since only the interest portion is claimable. An offset account linked to an interest only loan still reduces the interest charged, but because you're not paying down the loan amount, the offset balance becomes even more valuable.

If you have a $400,000 interest only investment loan on a variable rate and a $50,000 offset balance, you're only paying interest on $350,000. Over a year at current variable rates, that offset could save you around $2,500 in interest. Because interest is a claimable expense and the offset saves you from paying it, you're effectively earning a tax-free return on that $50,000 equivalent to your loan's interest rate.

Fixed rate interest only loans are available, but they come with the same offset restriction as principal and interest fixed loans. If you want interest only repayments and offset access, you need the loan or at least the offset portion to remain variable. Many Victorian property investors use interest only variable loans for this reason, especially if they're building a portfolio and want flexibility to move funds between properties or redraw for deposits on future purchases.

How Lenders Assess Investment Loan Applications with Fixed Rates

Lenders assess your borrowing capacity for an investment property using the rental income from the property, your personal income, and existing debts. Most lenders only count 80% of the expected rental income when calculating serviceability, which accounts for vacancy periods and maintenance costs. If you're applying for a fixed rate loan, the lender will assess your ability to service the loan at the fixed rate you're applying for, plus a buffer of around 3%.

Your investor deposit also affects which loan products and features are available. With a deposit below 20%, you'll need to pay Lenders Mortgage Insurance, and some lenders restrict access to certain investment loan features like offset accounts or interest only terms when the loan to value ratio is above 80%. Fixed rates are usually available across all LVR ranges, but the interest rate discount you receive often depends on your deposit size and whether the loan is for owner-occupied or investment purposes.

If you're refinancing an existing investment property to access equity or secure a lower rate, the same serviceability rules apply. Lenders will reassess your income, the property's rental yield, and your other commitments. Refinancing to a split loan structure can make sense if your current loan doesn't offer the flexibility you need or if you want to lock in part of your loan while keeping offset access on the rest.

Building Wealth with the Right Loan Structure

The loan structure you choose directly affects your ability to build wealth through property investment. Fixed rates give you certainty and protection from rising rates, but they remove flexibility. Variable rates with offset accounts let you use your savings to reduce interest costs without locking those funds away, but your repayments can increase if rates rise. A split loan gives you both, but it requires more active management and a clear understanding of how much certainty versus flexibility you need.

Many Victorian investors use variable rate loans with offset accounts when they're actively building a portfolio, because the flexibility to access funds for deposits and the ability to reduce interest costs on multiple properties outweighs the benefit of fixed rate certainty. Once the portfolio is established and the focus shifts to holding long-term, some investors fix a portion of their loans to lock in repayments and reduce exposure to rate movements. Your property investment strategy should guide your loan structure, not the other way around.

Whether you're buying your first investment property or restructuring an existing portfolio, understanding how fixed rates and offset accounts interact helps you choose investment loan options that align with your goals. Call one of our team or book an appointment at a time that works for you.

Frequently Asked Questions