Everything You Need to Know About Fixed Rates & Offsets

Fixed rate investment loans do not allow offset accounts during the fixed term.

Most lenders structure their investment products so that an offset account can only be attached to the variable portion of a loan. If you fix the entire amount, you lose access to offset for the duration of that fixed period. The product constraint exists because offset accounts reduce the interest a lender collects, and a fixed rate contract locks in the rate and the cash flow calculation for both parties. The practical effect is that investors who want both rate certainty and cash flow flexibility need to split their borrowing across fixed and variable components.

Why Corinella Investors Are Reviewing Their Loan Structures

Corinella sits within a coastal market where rental properties typically serve holiday tenants during peak periods and occasionally sit vacant between bookings. Managing cash flow becomes more important when rental income fluctuates, and offset accounts provide a way to reduce interest on your loan without locking funds into the mortgage. At the same time, investors are looking at fixed rates to manage repayment certainty while the broader regulatory environment shifts.

The Treasury Laws Amendment (Tax Reform No. 1) Act 2026 received Royal Assent in late June. From July next year, net rental losses on most residential investment properties purchased after mid-May this year can only be offset against other residential rental income or carried forward. They cannot be offset against salary or wages. Properties held before that date, or purchased under contract before 7:30pm AEST on 12 May, remain under existing negative gearing rules. Eligible new builds still qualify for full negative gearing.

Investors in Corinella who bought before the cut-off date are not affected. Those buying now, or considering a purchase in the next twelve months, are working through how quarantined losses affect borrowing capacity and serviceability. The uncertainty has pushed some investors toward interest-only variable loans with offset, while others are fixing a portion of the loan to hold repayments steady while they wait for further ATO guidance.

How a Split Loan Structure Works in Practice

A split loan divides your total borrowing into two or more accounts under the same security. One portion might be fixed at a set rate for two to five years, while the other portion remains variable with an offset account attached. Each portion has its own balance, rate, and repayment calculation.

Consider an investor who borrows $450,000 to purchase a property in Corinella. They fix $270,000 at a rate that holds for three years and leave $180,000 on a variable rate with offset. Rental income and any surplus cash sit in the offset account, reducing the interest charged on the $180,000 variable portion. The fixed portion continues to accrue interest at the locked rate regardless of what sits in offset. If the investor holds $30,000 in the offset account, interest is only charged on $150,000 of the variable portion, but the full $270,000 fixed portion still accrues interest as contracted.

The structure allows the investor to hold repayments steady on the majority of the loan while retaining access to funds and interest savings on the variable component. The offset account also provides a buffer for vacancy periods, body corporate levies, or maintenance without needing to redraw from the loan or access a separate line of credit.

You can read more about investment loan options and how different product features align with different property strategies.

Interest Only Loans and Fixed Rates

Interest-only repayments are available on both fixed and variable investment loans, though not all lenders offer interest-only on fixed terms. An interest-only period reduces your monthly repayment because you are only covering the interest charge, not reducing the principal. Once the interest-only period ends, the loan reverts to principal and interest repayments, and the monthly cost increases.

Interest-only loans are commonly used to manage cash flow in the early years of an investment, particularly when rental income does not cover the full loan repayment or when the investor wants to deploy surplus cash elsewhere. The structure does not reduce the loan balance, so the total interest paid over the life of the loan is higher than an equivalent principal and interest loan.

If you fix an interest-only loan, the repayment remains constant for the fixed term. That certainty can be valuable if you expect rate rises, but you still lose access to offset for that portion of the loan. The combination of interest-only and a fixed rate is most useful when you want repayment certainty and do not have surplus cash to park in offset. If you do have surplus cash, a variable interest-only loan with offset will typically deliver lower total interest costs.

What Happens When the Fixed Term Ends

When a fixed rate term expires, the loan reverts to the lender's standard variable rate unless you negotiate a new fixed term or refinance. The standard variable rate is almost always higher than any discounted variable rate offered to new customers, so the end of a fixed term is the right time to review your loan and compare your options.

If you initially split your loan, the fixed portion will revert to variable and can have an offset account attached at that point, assuming the lender's product allows it. You can also choose to re-fix that portion, split it differently, or consolidate the entire loan onto a single variable rate with offset.

Refinancing at the end of a fixed term does not attract break costs because the contract has completed. If you want to exit a fixed rate loan before the term ends, the lender will calculate a break cost based on the difference between your fixed rate and the wholesale cost of funds for the remaining period. Those costs can run into tens of thousands of dollars depending on how far rates have moved. You can learn more about managing fixed rate transitions through our fixed rate expiry service.

LVR, LMI and Split Loan Structures

Your loan to value ratio is calculated on the total amount borrowed against the property's value, not on each split portion separately. If you borrow $450,000 against a property valued at $550,000, your LVR is approximately 82 per cent regardless of whether the loan is split or held as a single variable account.

Lenders Mortgage Insurance applies when your LVR exceeds 80 per cent. The premium is calculated on the total loan amount and can be capitalised into the loan or paid upfront. Splitting the loan into fixed and variable portions does not change the LVR or the LMI calculation, but it does give you more control over how you manage repayments and offset once the loan settles.

Investors using equity from an existing property to fund a deposit may find their borrowing capacity is shaped more by serviceability and the new debt-to-income settings than by LVR alone. APRA's DTI cap, effective from February this year, limits the proportion of new lending at six times income or higher. The cap applies separately to investor and owner-occupied loans, and lenders now measure serviceability at a minimum of three percentage points above the product rate.

Split loans do not change your DTI calculation, but they do allow you to manage repayments more actively once the loan is in place. If you are close to a DTI or serviceability threshold, refinancing an existing loan or restructuring your borrowing may improve your position before applying for a new investment loan.

Fixed Rates, Offset and Tax Deductibility

Interest on borrowings used to acquire or hold a rental property is deductible to the extent the property is rented or genuinely available for rent. The deduction applies to both fixed and variable portions of a split loan, and it applies whether you are on interest-only or principal and interest repayments.

Offset accounts do not change the deductibility of interest, but they do reduce the amount of interest you pay. If you hold $30,000 in an offset account attached to a $180,000 variable loan, you only pay interest on $150,000. That means your deductible interest expense is lower, but your out-of-pocket cost is also lower. The net effect is still a saving.

From a tax perspective, the key requirement is that the borrowed funds are used for income-producing purposes. If you redraw from an investment loan to fund private expenses, the interest on that redrawn amount is not deductible. The ATO looks at the purpose of the borrowing, not the security provided. Keeping investment and private borrowings in separate loan accounts makes record keeping and tax reporting more straightforward, particularly if you hold multiple properties or plan to access equity in future.

For investors affected by the negative gearing changes taking effect in July next year, the distinction between rental income and other income becomes more important. If your rental losses are quarantined, they can only offset rental income from other properties or be carried forward. The interest deduction still applies, but it no longer reduces your taxable salary or wages. That changes the cash flow equation and makes offset accounts more valuable, because reducing the amount of interest you pay is more beneficial than carrying forward a larger loss.

Choosing Between a Split Loan and a Full Variable Loan with Offset

A full variable loan with offset gives you complete flexibility. You can make extra repayments, redraw funds, and reduce interest dynamically as your offset balance moves. The downside is that your repayment will move with rate changes, and if rates rise, your monthly cost increases.

A split loan with a portion fixed gives you repayment certainty on that fixed portion, but you lose offset access and flexibility for the duration of the fixed term. The structure works when you want to lock in a portion of your repayment and still retain some liquidity and control through the variable portion.

The decision comes down to your cash flow, your tolerance for repayment variation, and whether you expect to hold surplus funds that would benefit from offset. In our experience, Corinella investors with holiday rentals or seasonal occupancy tend to favour variable loans with offset, because rental income is uneven and having access to funds without breaking a fixed contract is more valuable than locking in a rate. Investors with long-term tenants and steady income may prefer a higher fixed portion to smooth repayments and remove rate risk for a set period.

Talk to us about how different structures perform under different cash flow and rate scenarios. We can model repayments, offset benefits, and tax outcomes based on your actual numbers and the properties you are considering. Call one of our team or book an appointment at a time that works for you.

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