A fixed rate investment loan locks your interest rate for a set period, protecting your cashflow from rate increases while you hold a rental property.
That protection comes with trade-offs. You give up some flexibility in exchange for certainty, and the rate you lock in today determines whether that trade works in your favour or costs you when the fixed period ends. For Dulwich Hill investors, that decision now carries extra weight. The negative gearing changes taking effect from 1 July 2027 mean properties purchased after 12 May 2026 can no longer offset rental losses against your salary unless they qualify as eligible new builds. If your investment property runs at a loss during the fixed period, you need to know exactly what that loss will be each month, because you cannot use it to reduce tax on your other income.
How a Fixed Rate Protects Cashflow When Negative Gearing is Quarantined
A fixed investment loan rate guarantees your interest cost for one to five years, eliminating the risk that a rate rise turns an affordable holding cost into a financial strain.
Consider an investor who purchased a two-bedroom apartment in Dulwich Hill under contract in June 2026 and settled in August. The property generates $650 per week in rent but carries a loan of $700,000 at a three-year fixed rate of 5.89 per cent on interest-only terms. Monthly interest is $4,102. Rental income after agent fees and vacancy allowance averages $2,600. The monthly shortfall is $1,502 before rates, strata and insurance. Under the new rules, that $1,502 cannot be claimed against the investor's wage income. It can only be carried forward to offset future rental income or capital gains. Knowing that shortfall will not change for three years allows the investor to budget with confidence and hold the property through soft rental periods without scrambling to cover unexpected interest increases.
If the same loan were on a variable rate and the Reserve Bank lifted rates twice during that period, the monthly shortfall could grow to $1,800 or more. The investor still cannot claim the loss against wages, but now they are also managing a moving target every time rates shift. The fixed rate removes that second layer of uncertainty.
Interest-Only Versus Principal and Interest on a Fixed Investment Loan
Most investors fix their rate on interest-only terms to maximise the deductible portion of each repayment and preserve cashflow.
Interest on borrowings used to acquire or hold a rental property is fully deductible, provided the property is rented or genuinely available for rent. Principal repayments are not deductible because they reduce your debt rather than fund the income-producing asset. Fixing on an interest-only basis keeps your monthly cost at its lowest during the fixed period and ensures every dollar you pay is claimable, even if those deductions must now be quarantined under the new negative gearing rules.
Some lenders allow interest-only terms for up to five years on investment loans. Others cap it at three years or require principal and interest repayments from the start. The investment loan options available through Little Bull Finance include lenders that offer longer interest-only periods, which can be valuable if you are holding the property primarily for capital growth and want to minimise holding costs during the early years.
If you fix on principal and interest terms, your repayment will be higher but your loan balance will reduce over time. The interest portion remains deductible. The principal portion does not. This structure suits investors who want to build equity quickly or who plan to hold the property long-term and prefer the discipline of paying down debt.
What Happens When Your Fixed Rate Expires
When the fixed period ends, your loan automatically moves to the lender's variable rate unless you negotiate a new fixed term or refinance.
The variable rate your loan reverts to is often higher than the discounted rate offered to new customers. That reversion rate can add hundreds of dollars to your monthly repayment without warning. You have the option to lock in a new fixed rate before expiry, but you need to start that conversation at least 90 days out. Most lenders allow existing customers to refix without going through a full application, provided your circumstances have not changed and the loan is still performing.
If rates have fallen since you first fixed, moving to a variable rate or refixing at a lower rate can reduce your holding cost immediately. If rates have risen, refixing again may still be worthwhile if you expect further increases or if your cashflow cannot absorb the volatility. The fixed rate expiry process is something we manage proactively for clients, reaching out well before the rollover date so you are not caught on a higher reversion rate by default.
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How Lenders Calculate Your Borrowing Capacity for a Fixed Investment Loan
Lenders assess your ability to service an investment loan by adding a buffer to the interest rate and testing whether you can afford the repayment at that higher figure.
The serviceability buffer is currently three percentage points above the product rate. If you are applying for a fixed rate of 5.89 per cent, the lender tests your income at 8.89 per cent. They also apply the debt-to-income cap introduced in February 2026, which limits the number of loans a lender can approve above six times your gross income. If your total debt, including the new investment loan, exceeds six times your income, the lender must count that loan toward their 20 per cent cap on high-DTI investor lending. That does not mean you cannot borrow, but it does mean fewer lenders will approve the loan and you may face a higher interest rate or stricter conditions.
Rental income is included in the serviceability calculation, but most lenders only count 80 per cent of the gross rent to allow for vacancy and management costs. If the Dulwich Hill property generates $650 per week, the lender will include $520 per week in their income assessment. Your salary, any other rental income, and investment income are also counted. Existing debts, including your home loan, car loans and credit card limits, are deducted. The result determines how much you can borrow and whether a fixed rate loan at the current market rate will pass the buffered serviceability test.
Prepayment Restrictions and Break Costs on Fixed Investment Loans
Fixed rate loans limit your ability to make extra repayments, refinance or sell the property without incurring a break cost.
Most lenders allow up to $10,000 in additional repayments per year during a fixed term. Anything beyond that triggers a break cost, which is calculated based on the difference between your fixed rate and the lender's current wholesale funding cost for the remaining fixed period. If you fixed at 5.89 per cent and rates have since fallen, the lender loses income when you exit early and will charge you for that loss. Break costs can run into tens of thousands of dollars on large loans with several years remaining.
If you sell the property or refinance to another lender during the fixed period, the break cost applies in full. Some lenders allow you to port the fixed rate to a new property, but that option is rarely available on investment loans and usually requires the new loan to be equal to or greater than the amount being ported. The loss of flexibility is the trade you make for rate certainty. If there is any chance you will sell, renovate, or significantly pay down the loan within the fixed period, a variable rate or a shorter fixed term may be the better choice, even if the rate is slightly higher.
Why Dulwich Hill Investors Are Weighing Fixed Rates Against New Build Incentives
Dulwich Hill sits in a largely established market, with most stock consisting of federation homes, post-war units and mid-rise apartment blocks built before 2010.
Investors purchasing established dwellings in the suburb after 12 May 2026 face quarantined negative gearing from 1 July 2027. Investors purchasing eligible new builds, defined as dwellings constructed on previously vacant land or developments that increase the dwelling count, retain full negative gearing under the old rules. That carve-out has shifted attention toward new apartment projects in nearby precincts, but supply of qualifying new builds in Dulwich Hill itself is limited. The suburb is largely built out, with most new development restricted to low-rise infill or dual-occupancy conversions that may not meet the definition of an eligible increase in dwelling numbers.
If you are committed to buying in Dulwich Hill and the property is established, fixing your rate for three to five years gives you certainty over your non-deductible holding cost and removes the risk that rising rates compound the cashflow impact of quarantined losses. If you are open to nearby areas with new stock, the ability to continue negative gearing under the old rules may outweigh the appeal of Dulwich Hill's proximity to light rail and Marrickville Metro, particularly if you are borrowing at a high loan-to-value ratio and cannot afford to carry losses without a tax offset.
Using Equity from Your Dulwich Hill Home to Fund an Investment Loan Deposit
Many Dulwich Hill residents looking to invest use equity in their owner-occupied home to fund the deposit on an investment property.
If your home is worth more than you owe, you can borrow against that equity without selling. Lenders typically allow you to access up to 80 per cent of your home's value, minus your existing mortgage, without paying Lenders Mortgage Insurance. The borrowed funds can then be used as the deposit on your investment property. The interest on the amount borrowed for investment purposes is deductible. The interest on your original home loan remains non-deductible because it relates to your private residence.
Keeping the two loans separate is critical for tax purposes. Most brokers structure this as a split loan facility, with one loan for your home and one for the investment deposit. If you fix the rate on the investment component, you lock in the deductible interest cost while leaving your home loan on a variable rate with full offset and redraw access. This structure also aligns with the new negative gearing rules, because the interest on the investment loan portion is still deductible, it is just quarantined if the property was purchased after 12 May 2026 and is not an eligible new build. The refinancing process to establish this split can be completed before you make an offer, so you know exactly how much you can deploy when the opportunity arises.
Call one of our team or book an appointment at a time that works for you. We will walk through your current position, model the cashflow on different rate structures, and help you decide whether fixing gives you the protection you need or whether a variable rate leaves you with the flexibility that suits your investment strategy.
Frequently Asked Questions
Can I still negatively gear an investment property in Dulwich Hill if I fix the interest rate?
Yes, but only if you purchased the property before 12 May 2026 or it qualifies as an eligible new build. Properties bought after that date and settled after 1 July 2027 have rental losses quarantined, meaning you can only offset them against future rental income or capital gains, not your salary.
What happens to my fixed rate investment loan when the fixed period ends?
Your loan automatically reverts to the lender's variable rate, which is often higher than new customer rates. You can negotiate a new fixed rate or refinance before expiry to avoid rolling onto a higher reversion rate.
Do lenders count rental income when calculating how much I can borrow for a fixed rate investment loan?
Yes, but most lenders only include 80 per cent of the gross rent to account for vacancy and management costs. Your borrowing capacity is then tested at the fixed rate plus a three percentage point buffer.
Can I use equity from my Dulwich Hill home to fund the deposit on an investment property with a fixed rate loan?
Yes. You can borrow up to 80 per cent of your home's value minus your existing mortgage and use that equity as the deposit. The interest on the amount used for investment purposes is deductible, and you can fix the rate on that loan component separately.
What is a break cost and when does it apply to a fixed rate investment loan?
A break cost is a fee charged by the lender if you exit a fixed rate loan early by selling, refinancing or making large extra repayments. It is calculated based on the difference between your fixed rate and the lender's current wholesale funding cost for the remaining term.
