How to Use Fixed Rates and Extra Repayments on Investments

Extra repayments on a fixed rate investment loan can reduce your interest bill, but only if your loan terms allow them. Some investors who fix a rate find later that the loan limits extra repayments.

This article explains what to check before you fix, how extra repayments work in dollar terms, and how tax fits in.

Can You Make Extra Repayments on a Fixed Rate Investment Loan?

Sometimes. Whether you can make extra repayments on a fixed rate loan, and how much, depends on the lender and the product. The terms are set out in your loan contract, not by a government rule.

Some fixed loans cap extra repayments and others accept them without limit. Some fixed portions can sit alongside an offset account or redraw and others cannot. Because these features differ, ask for the answers in writing before you sign. A broker can compare investment loan options from lenders across Australia and point out the restrictions that matter for your plans.

The trade-off is simple to state. A fixed rate gives you repayment certainty, but you may give up flexibility with extra repayments, and leaving the loan early can trigger break costs. If break costs may apply, ask your lender for the cost and how it is calculated.

How Much Interest Do Extra Repayments Save on a Rental Property Loan?

An extra repayment reduces the balance that interest is charged on, so it saves interest at your loan's rate for as long as that rate applies. At an illustrative rate of 6.75% p.a., every $10,000 you pay off saves about $675 in interest over a year.

Consider an investor in Ormond whose fixed rate loan allows additional repayments. She receives a $10,000 work bonus and puts it on the loan. At the illustrative rate of 6.75% p.a., her yearly interest falls by roughly $675, because $10,000 multiplied by 6.75% is $675. That saving continues each year the balance stays lower and the rate stays the same.

There is a cost. That $10,000 is now tied up in the loan. If her lender does not offer redraw on the fixed portion, she cannot get it back without new borrowing. If she did redraw it later for a personal purpose, the interest on that redrawn amount would not be deductible, which is covered below. You can test your own numbers on our repayments page.

Do Extra Repayments Change Your Tax Deductions?

Yes. Interest on money borrowed to buy or hold a rental property is generally deductible, so paying down the loan lowers the interest you incur and the interest you can claim. Only the interest part of a repayment is deductible. The principal part is not.

In the example above, the $675 saved is also $675 less in deductible interest. The saving is real, but the after-tax benefit depends on your personal tax position. An accountant can show you how this plays out for you.

The ATO treats redraws and line of credit drawdowns as separate borrowings, and the deduction depends on what you use the money for. Redrawing extra repayments to cover private costs can therefore reduce the deductible portion of the loan. Keep clear records and speak with your accountant before you redraw.

Negative gearing rules have also changed. For established residential properties bought after 7:30pm AEST on 12 May 2026, net rental losses are deductible only against other residential property income from the 2027-28 income year. Properties held at that time, and eligible new builds, keep the current treatment. Your accountant can confirm which rule applies to your property, because it affects how much your cash flow matters when you decide between extra repayments and holding cash.

Fixed Rate or Variable Rate for an Investment Property?

A fixed rate suits investors who value predictable repayments, while a variable rate suits those who want room to change course. Neither is right for everyone. Some lenders offer split loans, so ask whether your lender does.

With a fixed rate, your repayment stays the same for the fixed term, even if the market moves. The costs are possible limits on extra repayments and break costs if you sell or refinance early. With a variable rate, repayments can rise or fall. Offset and redraw availability depends on the lender and product, on both fixed and variable loans, so confirm what your loan includes.

If you already hold a fixed loan, plan for the end of the term. Our fixed rate expiry page explains what happens when the term finishes, and refinancing may be worth considering at that point.

Interest-Only Loans and Borrowing Capacity

Choosing interest-only does not increase how much you can borrow. APRA expects banks and other authorised deposit-taking institutions to assess an interest-only loan on principal and interest repayments over the remaining term, excluding the interest-only period.

For example, a 30-year loan with a 5-year interest-only period is assessed over the remaining 25 years. That assessment gives a lower maximum loan size than an equivalent principal and interest loan. These lenders must also test new borrowers at a rate at least 3.0 percentage points above the loan rate. To see how this applies to your income and existing debts, start with our borrowing capacity guide.

Interest-only repayments leave the balance unchanged, so you pay no principal during that period. Extra repayments are one way some investors reduce the balance while keeping the loan structure they chose, if the lender allows them.

Local Advice for Ormond Investors

Ormond sits in postcode 3204, and our Ormond mortgage broker page has details on how we work with local clients. Whether you are buying your first rental or adding to a portfolio, the right structure depends on your goals, your other debts and your tax position.

Call one of our team or book an appointment at a time that works for you, and we will compare fixed and variable options, check how each lender treats extra repayments, and help you choose a structure that fits your plans.

Frequently Asked Questions