Disclaimer:
This article provides general information only and does not constitute financial, legal, tax, or investment advice. Property investment involves risk. Always do your own research and seek personalised advice from qualified professionals before making investment decisions.
Key Takeaways
- Fixed and floating loans have different pricing, repayment and flexibility terms that vary by lender and agreement.
- Rate forecasts are uncertain and should not replace affordability and downside testing.
- Splitting lending changes the timing and mix of risks; it does not guarantee lower cost or lower risk.
- Compare affordable repayments, liquidity, plans, risk tolerance and total cost under several scenarios.
- Check current written options, fees and total cost before a fixed term expires or circumstances change.
The fixed vs floating debate is one of the most common questions property investors face. While there is no universally right answer, understanding the trade-offs helps you make informed decisions that suit your situation.
For investment property owners, interest costs are often the largest expense. The rate structure you choose affects your cash flow, your ability to refinance, and your exposure to market movements.
Understanding Fixed Rates
A fixed rate applies for the agreed term, subject to the loan documents. Available terms, repayment amounts, fees and what happens when the term ends are lender- and agreement-specific.
Fixed Rate Benefits:
- ☐ Payment certainty for budgeting and cash flow planning
- ☐ Agreed rate during the fixed term, subject to the contract
- ☐ More predictable scheduled repayments for budgeting
- ☐ Ability to compare a known term cost with other current offers
Fixed Rate Drawbacks:
- ☐ Early repayment, sale or refinance may trigger contract-specific charges
- ☐ Limited extra repayment options during the term
- ☐ Miss out if rates drop significantly
- ☐ Less flexibility to restructure loans
Understanding Floating Rates
Floating rates can change under the loan terms. The OCR can influence mortgage rates, but lender pricing, timing and the size or direction of any change are not automatic.
Floating Rate Benefits:
- ☐ Early-repayment treatment may differ from a fixed loan; check all fees
- ☐ Extra-repayment rights depend on the product and agreement
- ☐ The rate may change, but not necessarily immediately or in line with the OCR
- ☐ Restructuring remains subject to lender approval, terms and costs
Floating Rate Drawbacks:
- ☐ Payment uncertainty makes budgeting harder
- ☐ Exposure to rising rates
- ☐ Pricing may be higher or lower than fixed offers at a given date
- ☐ Can create cash flow stress if rates spike
The Case for Splitting
A loan can sometimes be split across rate types or terms. This changes when portions reprice and how repayment rights and fees apply, but it does not guarantee lower cost or lower risk.
Questions for a split-loan scenario:
With staggered expiries, portions reprice at different dates. Compare the added administration, available rates and the possibility that several outcomes are worse than expected.
- What amount reprices at each expiry date?
- What rates, fees and repayment rights apply to each portion?
- What happens if income falls, costs rise or a sale occurs early?
- Does any floating or revolving portion justify its pricing and redraw risks?
Special Considerations for Investors
Selling Properties
If a sale is possible, compare the proposed settlement timing with each loan term, portability or security-release conditions, early-repayment quote and incentive repayment. No rate type is automatically the right sale strategy.
Refinancing Flexibility
Refinancing a fixed loan may involve charges, but approval, pricing and costs are lender- and agreement-specific. Compare a current payout quote, new-loan fees, incentives and total amount payable before changing.
Cash Flow Management
Model scheduled repayments, vacancies, operating costs and accessible cash under both higher-rate and lower-income scenarios. Predictability and flexibility depend on the complete loan terms, not the rate label alone.
Debt Reduction Strategy
Extra-repayment limits and charges vary by product and agreement. Compare how payments are applied, redraw access, fees, interest calculation and total term before selecting a structure for debt reduction.
How to Think About Rate Predictions
Be sceptical of anyone who claims to know where interest rates are heading. History shows that even economists and banks get rate predictions wrong regularly. Some principles to keep in mind:
- If rates were certain to drop, fixed rates would already be lower than floating
- The market's best guess is already built into current pricing
- Unexpected events can move rates in surprising directions
- Making the "wrong" choice is not the end of the world; rates move in cycles
Use forecasts only as scenarios. Test affordable repayments, accessible reserves, debt concentration, sale plans, fees and total cost across outcomes you could withstand.
Revolving Credit for Investors
A revolving-credit facility has product-specific limits, interest, fees and redraw conditions. Compare those written terms and the risk of re-borrowing before deciding whether it fits a purpose:
- Interest is calculated daily on the balance
- Any funds in the account reduce your interest cost
- Drawdown is limited by the agreement, available credit and lender controls
- Repayment and redraw rights depend on the facility terms
Undrawn credit is not the same as cash savings and can be reduced or unavailable under its terms. Compare accessible savings and borrowing facilities separately rather than treating either as a guaranteed buffer.
When to Review Your Structure
Relevant times to check the written terms and current alternatives include:
- When any fixed rate term is coming up for renewal
- When you are buying or selling a property
- When there have been significant interest rate movements
- When your circumstances or goals have changed
- When a scheduled review is useful for your circumstances
Considering a Combination
A combination is one possible structure, not a default for investors:
- Choose any fixed portion and term only after comparing current offers and scenarios
- Check whether any floating or revolving portion provides useful flexibility after fees and risks
- If staggering terms, model each repricing date and the administrative complexity
- Before expiry, compare retaining, refixing, repaying and refinancing using written costs
A combination changes the mix of certainty, repricing, repayment rights and fees; whether that trade-off is suitable depends on the borrower and agreement.
The Bottom Line
There is no universal fixed, floating or split answer. Compare affordable repayments, liquidity, property plans, risk tolerance, written fees and total cost under several scenarios before choosing.
If you use a mortgage adviser, check that they are appropriately regulated and ask which providers they cover, how they are paid, what fees apply and what assumptions their scenarios use.