Proven tips to use fixed rate investment loans

Most fixed rate investment loans let you make extra repayments up to a capped amount each year without penalty.

That cap matters because the tax treatment of investment borrowing changes on 1 July 2027, and the way you structure repayments now affects your options later. Dentists holding existing investment properties under the current negative gearing rules can continue to offset rental losses against clinical income. Properties acquired after 7:30pm AEST on 12 May 2026 face quarantined losses from 1 July 2027, unless they qualify as eligible new builds. Understanding how fixed rate products handle extra repayments helps you manage cash flow across both grandfathered and newly acquired assets.

Fixed rate loans and annual repayment limits

Fixed rate investment loans for dentists typically allow extra repayments between $10,000 and $30,000 per year without triggering break costs. Amounts above that limit incur an early repayment fee calculated on the lender's wholesale funding loss. The annual cap resets each year on the anniversary of settlement, not the calendar or financial year.

Consider a general dentist who fixed a $600,000 investment loan at 5.89 per cent in September 2025 for three years. The product allows $20,000 in annual extra repayments. She directs $1,500 per month from locum sessions into the loan offset account, then transfers $20,000 into the loan each September without penalty. Over three years she reduces the principal by $60,000 while keeping the interest deduction intact, because the offset account preserves deductibility and the extra repayments are applied directly to the investment borrowing.

Interest deductibility and how repayments are allocated

Interest on borrowings used to acquire or hold residential rental property remains deductible to the extent the property produces assessable income. If you redraw funds from an investment loan for private purposes, the interest on that redrawn portion is no longer deductible.

This becomes relevant when you make extra repayments into a fixed rate loan and later need access to cash. Some lenders treat redraws as a new borrowing purpose, which can split the loan into deductible and non-deductible portions. Before making extra repayments on a fixed investment loan, confirm whether the product permits redraw and how the lender tracks the purpose of redrawn funds. If you anticipate needing liquidity, an offset account linked to a variable rate portion or a separate facility may preserve deductibility more cleanly.

Variable and fixed split for portfolio flexibility

Splitting an investment loan between variable and fixed portions gives you repayment flexibility without break cost exposure. A common structure is 50 per cent variable with full offset and 50 per cent fixed with the annual extra repayment allowance.

In a scenario like this, a periodontist borrowing $800,000 for a two-bedroom unit near a university campus might fix $400,000 at a rate locked until mid-2028 and leave $400,000 variable. Rental income and surplus practice distributions flow into the offset account against the variable portion, reducing daily interest without affecting the deductible loan balance. When the offset balance exceeds immediate liquidity needs, she transfers funds into the fixed portion up to the annual cap. The fixed portion provides rate certainty during the period when negative gearing rules are transitioning, and the variable portion absorbs irregular cash flow from specialist referrals or locum work.

Refinancing a fixed investment loan before expiry

Refinancing a fixed rate loan before the term ends triggers break costs unless the new lender or product allows a rate lock transfer. Break costs are calculated using the present value of the lender's interest rate margin loss over the remaining fixed period. In a falling rate environment, break costs can exceed $20,000 on a $500,000 loan with two years remaining.

If you are refinancing to access equity for a second investment property, the timing matters. Properties acquired before 7:30pm AEST on 12 May 2026 retain full negative gearing under existing rules. Properties acquired after that date but before 1 July 2027 can be negatively geared under existing rules until 30 June 2027 only. From 1 July 2027, losses are quarantined unless the property is an eligible new build. If your current fixed rate does not expire until late 2027, the value of refinancing to release equity now to acquire a grandfathered asset may outweigh the break cost. If the fixed rate expires in the second half of 2027 or later, you may have better access to properties that qualify as eligible new builds and retain negative gearing without needing to refinance early.

Eligible new builds and investor loan features

Eligible new residential dwellings under the Treasury Laws Amendment (Tax Reform No. 1) Act 2026 include dwellings constructed on previously vacant land and properties where the number of dwellings increases. A knock-down rebuild that replaces one dwelling with one dwelling does not qualify. A knock-down rebuild that replaces one dwelling with two dwellings does qualify.

Lenders offering construction loans or house and land package finance for investors typically provide progress draw facilities with interest-only payments during construction, converting to principal and interest or interest-only investment terms on practical completion. If you are purchasing an eligible new build off the plan or funding a subdivision and dual occupancy project, the loan structure needs to accommodate the construction phase and the longer settlement timeline. Some lenders allow you to lock a fixed rate at contract signing with a rate lock period extending up to 12 months, which protects you if rates rise during construction but may incur an opportunity cost if rates fall. Others offer a variable rate during construction, converting to fixed on completion. The choice depends on your view of rate movements and whether you want certainty during the build period or flexibility to lock closer to completion.

Interest-only terms and tax efficiency after July 2027

Interest-only investment loans allow you to minimise repayments and maximise deductions during the interest-only period, typically between one and five years. After 1 July 2027, interest-only terms remain available, but the value proposition changes for properties subject to loss quarantining.

For a property acquired after 12 May 2026 that does not qualify as an eligible new build, rental losses from 1 July 2027 can only offset other residential rental income or be carried forward. If you hold multiple investment properties, one grandfathered and one subject to quarantining, the grandfathered property can continue to generate losses that offset your clinical income. The quarantined property's losses can offset income from the grandfathered property if that property generates a surplus, or be carried forward to offset future gains. Interest-only terms on the quarantined property still reduce cash outflow and preserve capital for portfolio growth, but the immediate tax benefit is confined to the quarantining rules. On the grandfathered property, interest-only terms deliver the same tax outcome as before, with full deductibility against salary and wage income.

Portfolio strategy and DTI settings from February 2026

The debt-to-income cap introduced on 1 February 2026 limits ADIs to funding no more than 20 per cent of new investor loans at a DTI of six times gross income or greater. The cap applies separately to investor and owner-occupier portfolios, and is measured quarterly for significant lenders and on a four-quarter rolling basis for smaller lenders.

For a general dentist with gross income of $250,000, a DTI of six times equates to total investment lending of $1,500,000. If your existing investment debt sits at $900,000 and you want to borrow a further $650,000, the new loan would push total investment debt to $1,550,000, slightly above the six times threshold. Some lenders will accommodate this within their 20 per cent allocation. Others will decline or require a larger deposit to bring the loan amount down. The DTI cap does not apply to finance for the construction of new dwellings, finance for newly erected dwellings as defined in the relevant accounting standard, or bridging finance for owner-occupiers. If you are purchasing an eligible new build as an investment, the DTI cap does not apply, which may influence your property selection if you are approaching the six times threshold and want to expand your portfolio without hitting serviceability constraints.

Call one of our team or book an appointment at a time that works for you to discuss how fixed rate features and the transition to quarantined loss rules apply to your situation.

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