Investment Loans: Fixed, Variable, and Split Options

Your choice between a fixed, variable, or split investment loan determines whether your repayments stay locked at today's level, move with the lender's rate changes, or combine both approaches.

Registered nurses and midwives purchasing rental property face the same decision as any other investor, but your rostered income, shift patterns, and eligibility for home loans for nurses mean the serviceability calculation and rate structure you select have direct consequences for how lenders assess your capacity and how much buffer you keep in your budget when rates shift.

Fixed Rate Investment Loans

A fixed rate investment loan locks your interest rate for a set period, typically between one and five years. Your repayment amount stays the same for the entire fixed term, regardless of what happens to the lender's variable rates or the Reserve Bank cash rate.

Consider a midwife purchasing a two-bedroom unit near Blacktown Hospital as her first rental property. She fixes the rate at the time of settlement for three years. If variable rates rise by 0.50 percentage points over the next twelve months, her repayment doesn't change. The certainty means she can calculate her exact cashflow for the full three years, which matters when shift income can vary from fortnight to fortnight and rental income needs to cover a known, fixed outgoing.

Fixed rates generally sit higher than variable rates at the time you lock them in. You're paying a premium for certainty. If rates fall during your fixed term, you don't benefit. If you need to exit the loan before the fixed period ends, break costs apply. These costs are calculated based on the difference between your fixed rate and the lender's current wholesale funding cost for the remaining term, and they can be substantial if rates have dropped materially since you fixed.

Variable Rate Investment Loans

A variable rate investment loan moves in line with the lender's standard investment loan rate. When the lender increases or decreases their rate, your repayment changes.

Variable loans offer full flexibility. You can make additional repayments without penalty, redraw those funds if the loan permits, and refinance or exit the loan at any time without break costs. Most variable investment loans come with an offset account, which reduces the interest you pay by the balance sitting in the account each day. That's useful if you're building a deposit for your next property or holding funds for renovation work, because those savings remain accessible while still reducing your interest cost.

Rate discounts on variable investment loans depend on the loan amount, your LVR, and whether the loan is interest-only or principal and interest. Lenders generally offer larger discounts on loans above certain thresholds and on principal and interest structures. If you're using equity from your owner-occupied property to fund the investment loan, your total borrowing may qualify for a stronger discount than a standalone smaller loan would attract.

The downside is uncertainty. If rates rise, your repayment rises with them. A 0.25 percentage point rate increase on a loan amount in the mid-six figures can add several hundred dollars per month to your repayment, and that comes directly out of your cashflow.

Split Rate Investment Loans

A split loan divides your total borrowing into two portions: one fixed, one variable. You choose the split percentage. Common splits are 50/50, but you can structure it as 70% fixed and 30% variable, or any other proportion that suits your risk tolerance.

The fixed portion gives you certainty over part of your repayment. The variable portion gives you flexibility to make extra repayments, access an offset account, and benefit from rate falls. If rates rise, only the variable portion of your repayment increases. If rates fall, you benefit on the variable portion while the fixed portion stays unchanged.

In our experience, nurses purchasing their first investment property often choose a split structure because it balances the need for budget certainty with the flexibility to manage surplus cash in an offset or make lump sum repayments when shift loading or overtime creates temporary income spikes.

A split loan requires two separate loan accounts with the same lender. Each portion has its own interest rate, repayment amount, and terms. The fixed portion will have a fixed term, typically one to five years. When that term ends, the fixed portion reverts to a variable rate unless you refix it at the then-current fixed rate. The variable portion continues on variable terms throughout.

You can usually adjust the split when the fixed term expires by refixing a different portion of the total loan. That gives you the option to increase or decrease the fixed component based on where you think rates are heading and how much certainty you need at that point in time.

Interest Only Versus Principal and Interest on Investment Loans

Investment loans can be structured as interest-only or principal and interest, and this choice applies regardless of whether you select fixed, variable, or split rates.

An interest-only loan means you pay only the interest cost each month. The loan balance doesn't reduce. At the end of the interest-only period, usually one to five years, the loan converts to principal and interest unless you request and qualify for an extension. The lower repayment during the interest-only period frees up cashflow, which some investors use to build deposits for additional properties or to offset against other debt.

Interest-only structures are common among property investors because the interest component is tax-deductible against rental income, while principal repayments are not. Paying down the loan balance using after-tax income reduces the tax benefit you receive from holding the investment property. Most investors prioritise paying down non-deductible debt, such as their owner-occupied home loan, before paying down their investment loan principal.

Principal and interest repayments are higher, but they reduce your loan balance over time and build equity in the property. Lenders typically offer better interest rate discounts on principal and interest loans than on interest-only loans, and the principal and interest structure attracts a lower risk weighting under the prudential standards, which can improve serviceability outcomes when you apply.

If you're using negative gearing as part of your wealth strategy, the interest-only structure maximises your deductible expense in the early years and keeps your repayment low relative to the rental income. The tax benefit from the loss can be applied against your nursing or midwifery income, reducing your overall tax liability.

How Serviceability Applies to Investment Loans for Nurses

Lenders assess investment loan applications by calculating your ability to service both your existing debts and the proposed investment loan at a rate that includes a buffer of at least 3.0 percentage points above the loan product rate. Rental income from the property is included in the serviceability calculation, but most lenders apply a shading factor, typically assessing only 80% of the rental income to account for vacancy, maintenance, and holding costs.

Your rostered base income, shift loading, and regular overtime are counted in full by lenders who understand nursing and midwifery pay structures. Agency and casual income may be counted at a lower percentage or excluded entirely, depending on the lender's policy. If you're moving from permanent to agency work or reducing your rostered hours, your borrowing capacity for the investment loan will be assessed on the lower income, even if your actual take-home pay is higher.

The DTI lending limit introduced in February applies separately to owner-occupier and investor lending. Each lender can approve up to 20% of new investor loans to borrowers with a total debt-to-income ratio of six times or more. If your total debt, including the proposed investment loan, exceeds six times your gross annual income, the lender may still approve the loan, but the application sits within that 20% allocation and is subject to closer scrutiny.

If you're seeking LMI waivers for nurses, those waivers generally apply to owner-occupied lending only. Investment loans above 80% LVR require LMI, and the premium is calculated on the full loan amount. The LMI cost is capitalised into the loan in most cases, which increases the total borrowing and the monthly repayment.

Rate Structures and Portfolio Growth Strategy

Investors building a portfolio of multiple properties typically structure each loan to suit the role that property plays in the overall strategy. A property purchased for long-term capital growth in a high-demand area near a major hospital precinct may suit a principal and interest variable loan with an offset account, allowing you to accumulate funds in the offset for the next deposit while still benefiting from rate falls and full flexibility.

A property purchased primarily for cashflow in an outer suburb with strong rental yield may suit an interest-only fixed loan, locking in the repayment at a level that ensures the property remains positively geared or close to it, even if rental income is shaded at 80% for serviceability.

If you're expanding your property portfolio and already hold one or more investment loans, each new loan is assessed on your total debt position, not just the individual property. Lenders aggregate all your borrowings and calculate serviceability across the full exposure. Splitting your loans across multiple lenders can sometimes improve your ability to add properties, because each lender assesses only the loans they hold when applying their internal portfolio limits, though your total DTI ratio still applies across all lenders.

Refinancing Investment Loans

Refinancing an investment loan to a lower rate or better structure is common once the initial fixed term expires or when a lender's rate becomes uncompetitive. Investment loan refinancing lets you move the loan to a new lender without selling the property.

When refinancing, lenders reassess your income, debts, and the property's current value. If the property has increased in value since purchase, your LVR improves, which may qualify you for a lower rate or remove the need for LMI on any top-up borrowing. If the property has fallen in value or remained flat, your LVR may have increased due to interest-only repayments not reducing the balance, which can limit your refinancing options or require a fresh LMI premium.

Most lenders allow you to refinance from interest-only to principal and interest, or from principal and interest to interest-only, subject to serviceability. Switching from interest-only to principal and interest increases your repayment but may unlock a better rate discount and improve your ability to borrow for the next property.

Choosing the Right Structure

Your decision between fixed, variable, and split depends on your tolerance for repayment uncertainty, your cashflow position, and your plans for the property.

If you need absolute certainty for a set period and can accept that you'll pay a premium for that certainty, fix the rate. If you want full flexibility and are comfortable managing repayment fluctuations, choose variable. If you want both certainty and flexibility, split the loan.

Interest-only suits investors prioritising tax efficiency and cashflow in the short term. Principal and interest suits investors focused on reducing debt over time and accessing the lowest available rates.

Call one of our team or book an appointment at a time that works for you. We'll calculate your serviceability across each structure, show you the repayment difference between fixed, variable, and split options, and make sure the loan you choose fits the property strategy you're building.

Frequently Asked Questions