Fixed Rate Loans and Offset Accounts for Investors

If you are weighing up a fixed rate against an offset account on an investment loan, the two do different jobs. A fixed rate locks in your repayment for a set period. An offset account cuts the interest you pay by sitting your savings against the loan balance. Often you can't get the full version of both on the same loan, so the choice comes down to what matters more to you.

How Does a Fixed Rate Investment Loan Work?

A fixed rate investment loan holds your interest rate steady for an agreed period, so your repayments stay the same until the fixed term ends. That gives you certainty on one of your biggest holding costs, but you give up some flexibility.

The main trade-off is that fixed loans can carry break costs if you repay early, refinance or sell during the fixed term. Some fixed loans also limit extra repayments or don't offer an offset. Rules differ between lenders, so check the product terms before you commit.

When the fixed term ends, the loan moves to the lender's rate unless you act. Our fixed rate expiry page explains what to do before that date arrives.

How Does an Offset Account Work on an Investment Loan?

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

Your loan balance itself doesn't change. The loan amount stays the same, and so does the loan's purpose. Lenders also don't count your offset balance as a reduction in the loan when they work out your loan-to-value ratio (LVR).

The trade-off is that offset loans can come with a higher rate or an annual package fee, depending on the lender. Whether an offset is full or partial also varies. A partial offset only reduces interest on part of your balance.

Offset Accounts and Tax: What Happens to Your Deductions?

An offset account lowers the interest you are charged, so the interest you can claim as a deduction is lower too. You are not losing a deduction. You are paying less interest in the first place.

Interest on money borrowed to buy or hold a rental property is generally deductible while the property is rented or available for rent. Only the interest part of a repayment is deductible. The principal part is not.

Redraw is different. The ATO looks at what borrowed money is used for each time funds are drawn. If you redraw money from an investment loan for personal use, that part of the interest may not be deductible. Speak to your accountant before you use redraw or release equity for anything other than the investment. Treatment of offset withdrawals should also be confirmed with your accountant.

Fixed Rate vs Offset: A Cranbourne Investor Example

A fixed rate suits an investor who wants certain repayments, while an offset suits an investor who holds a large cash buffer. As an example, consider a Cranbourne investor with a loan of $500,000 and $50,000 in savings.

At an illustrative rate of 6.75% p.a., interest on $500,000 is about $33,750 a year. If the $50,000 sits in an offset, interest is charged on $450,000, which is about $30,375 a year. That is roughly $3,375 less interest, and the cash stays available if a repair or vacancy comes up.

If the investor instead picks a fixed loan with no offset, the $50,000 sits in a normal savings account. The repayment is certain, but the savings don't reduce the loan interest. And if they sell during the fixed term, break costs may apply.

In this scenario, the investor who values a cash buffer and flexibility leans towards the offset. The investor who values certain repayments and has little spare cash leans towards fixed. The figures are illustrative only. Try the mortgage repayment calculator with your own numbers.

Can You Split an Investment Loan Between Fixed and Variable?

Yes, many lenders let you split an investment loan so one part is fixed and the other is variable. This spreads your risk between a locked rate and a flexible one.

The trade-off is that the fixed portion may carry the same break cost and extra repayment limits as a fully fixed loan. Whether the offset can link to the fixed or variable portion depends on the lender, so ask before you choose a product.

If you already hold a loan, a loan health check can show whether your current structure still suits you. If a better structure means changing lenders, refinancing is worth a look, though discharge and other fees may apply.

Interest Only or Principal and Interest: How It Affects Your Choice

Interest only means your repayments cover just the interest for a set period, so the loan balance stays the same. Principal and interest repayments reduce the balance over time.

Interest-only does not increase how much you can borrow. Lenders assess your ability to repay principal and interest over the remaining term after the interest-only period ends. A 30-year loan with five years interest only is tested over the remaining 25 years.

When the interest-only period ends, repayments rise because the balance is repaid over a shorter term. Use the interest only calculator to see the step-up. Check your borrowing capacity before you shop for a property.

Rental Income and Lender Assessment

Lenders usually count rent when they assess an investment loan, but they don't count all of it. APRA's view is that prudent lenders count no more than 80% of expected rent to allow for gaps between tenants.

Banks must also test your ability to repay at a rate at least 3 percentage points above the loan rate. So a fixed rate that looks affordable today still has to pass that buffer. Non-bank lenders are not bound by this buffer, but each sets its own policy.

Negative Gearing Rules Have Changed

The rules on rental losses depend on when you bought. Losses from residential properties held at 7:30pm AEST on 12 May 2026 can still be deducted against other income, including wages, until the property is sold. Eligible new builds acquired after that date can also still be deducted against all income.

From the 2027-28 income year, net rental losses on established properties bought after that time can only be used against other residential property income, with excess losses carried forward. Interest remains deductible, but how a loss is used changes. This affects how much any interest saving from an offset or fixed rate matters to your tax position, so talk to your accountant before you buy.

If you are comparing options, call one of our team or book an appointment at a time that works for you. We can walk you through investment loans with Cranbourne investors, compare lenders across Australia, and map out a structure that fits your plans. You can also start with our Cranbourne mortgage broker page.

Frequently Asked Questions