One of the most debated decisions in property investment finance is whether to fix your interest rate or stay variable. Get it right and you save thousands. Get it wrong and you’re locked into higher repayments when better rates are available — or you miss the certainty of a fixed rate just before rates climb.
Here’s how I think about it.
How Fixed Rate Loans Work
A fixed rate mortgage locks in your interest rate for an agreed period — typically 1, 2, 3, or 5 years. After that period, the loan reverts to the lender’s variable rate unless you refinance.
Advantages:
- Certainty — your repayments don’t change for the fixed period
- Budgeting clarity — especially useful if your rental income is your primary buffer
- Protection against rate rises if you fix before the RBA tightens policy
Disadvantages:
- Break costs can be substantial if you need to exit early
- Limited or no offset account functionality
- You miss out if variable rates fall during your fixed period
How Variable Rate Loans Work
Variable rate loans move with market conditions — primarily influenced by the RBA’s cash rate decisions and lender funding costs. When the RBA cuts rates, variable borrowers benefit almost immediately. When the RBA raises rates, repayments go up.
Advantages:
- Full offset account access — money in offset reduces interest charged daily
- Flexible extra repayments without break costs
- Easier to refinance to a better deal
The Split Loan Strategy
Many Australian investors split their loan — fixing a portion for certainty while keeping a portion variable for flexibility. For example: 60% fixed, 40% variable. This hedges against being completely wrong on rate direction.
What I’d Consider in 2025
I’m not in the business of making rate predictions — and anyone who tells you with certainty where rates are heading is guessing. What I’d focus on instead: your cash flow position, your risk tolerance, and your investment timeline.
If your cash flow is tight and a rate rise would put you under pressure, fixing provides valuable insurance. If you have strong cash flow and want flexibility to refinance or sell, variable is likely more appropriate.
Read next: Negative gearing in Australia — a plain English guide to understand how rate decisions interact with your tax position.
Sources: RBA Cash Rate Target | APRA | ATO