Understanding the Basics of Fixed, Variable & Split Loans

Investment Loan Structure: Which Rate Type Fits Your Situation

You pick your rate structure before settlement, and it determines how your repayments move over time. Variable rate investment loans follow market movements. Fixed rate loans lock your rate for a set period, usually one to five years. Split loans divide your borrowing between fixed and variable portions, giving you partial protection from rate rises while keeping some access to features like offset accounts and extra repayments.

Consider a primary teacher who borrows to buy a rental property in regional Victoria. They choose a three-year fixed rate at the time of settlement because they want predictable repayments while the property establishes tenancy. Their repayments stay the same for three years, regardless of what happens to rates in that period. At the end of the fixed term, the loan reverts to a variable rate unless they refinance or refix.

The decision depends on your income pattern, your view on rate movements, and how much flexibility you need during the loan term. Teachers often prefer some level of certainty because their salaries are structured around fixed pay scales and known progression.

Fixed Rate Investment Loans: What You Lock In and What You Lose

A fixed rate investment loan keeps your interest rate and repayments unchanged for the agreed term. You know exactly what you'll pay each fortnight or month, and that amount won't shift if the Reserve Bank moves the cash rate. The downside is that you typically lose access to offset accounts, and most lenders cap extra repayments at around $10,000 to $30,000 per year during the fixed period. If you break the loan before the fixed term ends, you may face break costs calculated on the lender's funding loss.

In our experience, fixed rates suit teachers who want certainty during a specific period, such as while managing a career move, parental leave, or overlapping mortgages. The protection works both ways. If rates fall, you're locked in at the higher rate. If rates rise, you're protected from the increase.

One detail that catches people out is that fixed rates are priced differently for investment loans compared to owner-occupied loans. Investment fixed rates are typically higher, even from the same lender, because the loan carries higher risk weighting under prudential standards. When comparing fixed rate options, check whether the rate applies to interest-only or principal-and-interest repayments, as this affects your cash flow and tax position.

Variable Rate Investment Loans: Access to Features With Rate Movement

Variable rate investment loans move with the market. When lenders adjust rates, your repayments change within a few weeks. The benefit is that you retain access to loan features like offset accounts, unlimited extra repayments, and redraw facilities. For an investment loan, an offset account can reduce the interest you're charged without reducing the deductible portion of your borrowing.

A variable rate also gives you the option to refinance your investment loan without break costs if a better rate or structure becomes available. This matters for teachers building a portfolio, because your borrowing needs may shift as your equity position changes or you add a second property.

Variable rates for investment loans sit above owner-occupied variable rates from the same lender. The gap is usually between 0.30 and 0.60 percentage points, depending on your deposit size and the lender's pricing at the time. Some lenders offer rate discounts for teachers on investment loans, particularly if you're borrowing above certain thresholds or consolidating multiple loans with the one institution.

For primary teachers with stable employment, a variable rate makes sense if you value flexibility and expect to make extra repayments when your cash flow allows, such as after receiving a pay rise or selling another asset.

Split Loan Structures: Dividing Risk Between Fixed and Variable

A split loan divides your total borrowing into two or more portions, each with its own rate type. You might fix 50 per cent of the loan for three years and leave the other 50 per cent variable. The fixed portion gives you partial protection from rate rises, while the variable portion keeps access to an offset account and lets you make extra repayments without restriction.

The split doesn't need to be even. You could fix 70 per cent and leave 30 per cent variable, or any other combination that suits your situation. Each portion is treated as a separate loan account for repayment and feature purposes, though they're both secured by the same property.

As an example, a primary teacher borrowing for an investment property might fix 60 per cent of the loan to cover their minimum repayment obligations, then leave 40 per cent variable and link an offset account to that portion. Their salary goes into the offset, reducing interest on the variable portion while keeping the fixed portion stable. When the fixed term ends, they can refix, leave the entire loan variable, or split again depending on market conditions at that time.

Split structures work particularly well when you're unsure about rate direction or want to test both options without committing fully to either. The main consideration is that each split may carry separate account fees, so check the total cost before settling on the structure. Some lenders apply a single package fee that covers multiple splits, while others charge per account.

For teachers considering their first investment property purchase, a split loan can provide a middle path between certainty and flexibility during the early years of ownership.

Interest-Only Repayments on Investment Loans

Most investment loans give you the option to make interest-only repayments for a set period, usually up to five years. During that time, you pay only the interest component, which means your loan balance doesn't reduce. The appeal for investors is that interest-only repayments are lower than principal-and-interest repayments, which improves cash flow and reduces the amount of rental income needed to cover the loan.

Interest-only periods apply to both fixed and variable rate loans. You nominate the interest-only term at settlement, and once it expires, the loan reverts to principal-and-interest repayments unless you apply to extend it. Lenders assess extensions based on your financial position at the time, and most will allow a total interest-only period of up to ten years across the life of the loan, though borrowing above 80 per cent of the property value may limit your options.

From a tax perspective, all interest on an investment loan is deductible while the property is rented or available for rent, whether you're paying interest-only or principal-and-interest. The principal portion of a principal-and-interest repayment is not deductible. That's why many property investors prefer interest-only during the accumulation phase and redirect their surplus cash flow into other investments or into paying down non-deductible debt, such as their mortgage for their own home.

For primary teachers with limited surplus income, interest-only repayments can make the difference between an investment property being positively geared or negatively geared. The choice depends on your cash flow, your broader financial position, and whether you're focused on building equity or maximising tax deductions in the near term.

Loan-to-Value Ratio and Deposit Requirements for Investment Loans

Lenders assess investment loans more conservatively than owner-occupied loans. Most lenders cap investment loans at 90 per cent of the property value, and some cap them at 80 per cent depending on your borrowing capacity and the lender's credit policy. Borrowing above 80 per cent typically requires you to pay for Lenders Mortgage Insurance, which protects the lender if you default. LMI premiums increase sharply above 80 per cent and again above 85 per cent.

For teachers, some lenders offer LMI waivers on investment loans up to 90 per cent of the property value, provided you meet the lender's occupation and income criteria. These waivers can save several thousand dollars in upfront costs and make higher LVR investment loans more viable.

Your deposit needs to be genuine savings or equity from another property. Gifted deposits are generally not accepted for investment loans, and some lenders require at least 5 per cent of the deposit to come from genuine savings even if you're using equity for the remainder. If you're using equity from your existing home, the lender will value both properties and calculate your total borrowing position across all secured loans.

Debt-to-income limits introduced in early 2026 mean that lenders can only write a limited proportion of new investment loans to borrowers with total debt above six times their gross income. For a primary teacher earning around $90,000, that threshold sits at $540,000 in total borrowing. If you're already carrying a home loan and other debts, this limit may affect how much you can borrow for an investment property, particularly if you're seeking a high LVR loan.

Working with a mortgage broker who understands teacher lending helps you identify which lenders offer the most flexible investment loan settings for your occupation and income level, including access to LMI waivers and higher debt-to-income tolerance where available.

Switching or Refinancing Between Rate Structures

You're not locked into your original rate structure for the life of the loan. Variable rate investment loans can be refinanced at any time without break costs. Fixed rate loans can be refinanced, but doing so before the fixed term expires may trigger break costs if the lender's funding cost has moved against you. Those costs can be substantial, particularly if you fixed during a low rate environment and rates have since risen.

Once your fixed term expires, you can choose to refix, switch to variable, or split the loan without penalty. Many investors refix at the end of each term if they still want rate certainty, or switch to variable if they expect rates to fall or want access to offset and redraw features.

Split loans give you the option to adjust the split ratio when the fixed portion expires. You might have started with a 50/50 split, then shift to 70 per cent variable and 30 per cent fixed once you've built more equity and want greater access to offset benefits.

Refinancing to a different lender is common among property investors, particularly when seeking better rates, accessing equity for a second purchase, or consolidating multiple loans into a single facility. The refinancing process involves a full credit assessment, updated property valuations, and new loan documentation. Discharge fees from your existing lender and application fees with the new lender are typical costs, though some lenders offer refinance rebates or fee waivers to attract new business.

Call one of our team or book an appointment at a time that works for you.

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