How to Make Extra Repayments on a Fixed Investment Loan

A fixed rate investment loan gives you predictable repayments, but most lenders cap how much extra you can pay each year without triggering break costs.

Investors often choose a fixed rate to lock in borrowing costs and simplify cash flow forecasting, particularly when rental income needs to cover the mortgage. The catch is that fixed rate loans typically limit additional repayments to between $10,000 and $30,000 per year, depending on the lender. If you exceed that limit, you may face break costs that wipe out any benefit from paying down the loan faster.

Fixed Rate Extra Repayment Caps: What Most Lenders Allow

Most lenders allow between $10,000 and $30,000 in extra repayments per year on a fixed rate investment loan without penalty. Some lenders impose a lower cap, particularly on longer fixed terms. Once you exceed the annual threshold, the lender may charge break costs to recover the interest income they lose when you repay principal early. These costs are calculated based on the difference between your fixed rate and the rate the lender can now earn by reinvesting the funds, which means break costs rise when market rates fall.

Consider an investor who fixes a $600,000 loan at 5.8 per cent for three years. The lender allows $20,000 in extra repayments per year. If the investor receives a bonus or sells another asset and tries to pay down $60,000 in the second year, the lender will apply break costs to the $40,000 above the annual cap. Depending on where rates have moved, that cost could run to several thousand dollars.

Split Loan Structures for Investors Who Want Flexibility

A split loan divides your borrowing between a fixed portion and a variable portion, so you can lock in part of your rate while keeping flexibility on the rest. The variable portion accepts unlimited extra repayments without penalty, and you can redraw those funds if the property needs repairs or if you want to access equity for another purchase. The fixed portion still offers rate certainty for the agreed term.

Investors often split 50/50 or 60/40 between fixed and variable, but the right mix depends on your cash flow and how much certainty you want. If rental income is tight and you need predictable repayments, a higher fixed portion makes sense. If you expect irregular income or plan to pay down debt quickly, weighting more to variable keeps your options open. You can usually arrange a split at settlement or when you refinance, and most lenders do not charge extra fees for splitting.

Interest-Only Fixed Loans and Extra Repayments

Interest-only investment loans on a fixed rate still allow extra repayments within the lender's annual cap, but those extra payments reduce the principal and are usually not redrawable during the fixed term. Once the interest-only period ends, the loan reverts to principal and interest, and the reduced balance lowers the required repayment. If you make extra payments during the interest-only period, those funds are typically locked in until the fixed term expires or you refinance.

Some investors prefer to keep surplus cash in an offset account rather than paying extra into a fixed interest-only loan, because offset accounts preserve liquidity and still reduce the interest charged. Most fixed rate loans do not come with an offset, so if that feature matters to you, either choose variable for the portion you want to offset or check whether the lender offers a partial offset on the fixed component.

Tax Treatment of Extra Repayments on Investment Property Loans

Paying extra into your investment loan reduces the principal, which in turn reduces the deductible interest you can claim. The loan purpose determines deductibility, not the security, so any borrowing used to acquire or hold an investment property remains deductible as long as the property is rented or genuinely available for rent. If you later redraw funds from the loan for a private purpose, such as a holiday or car, that portion of the interest becomes non-deductible.

For properties acquired after 12 May 2026, negative gearing treatment depends on whether the property was held or under contract at that date or qualifies as an eligible new build. Properties purchased after that date are subject to restricted loss offset rules from the 2027-28 income year, meaning losses can only be offset against other residential property income rather than salary or wages. The ability to claim interest deductions remains, but the timing of when those deductions reduce your overall tax may change. Speak with a tax adviser before restructuring your loan or making large additional repayments if you are affected by the new rules.

When Refinancing Makes More Sense Than Paying Extra

If your fixed rate is significantly above current market rates and you are approaching the end of your fixed term, refinancing to a lower rate may deliver more benefit than making extra repayments within the cap. The interest saving from a lower rate across the full loan balance often outweighs the benefit of reducing a small portion of the principal, particularly if you can also negotiate better loan features such as a higher extra repayment cap, an offset account or lower ongoing fees.

Investors who have built equity since taking out the original loan may also be able to refinance at a lower loan-to-value ratio, which can unlock a better rate or remove lenders mortgage insurance from the pricing. If you are within six months of your fixed rate expiry, most lenders will not charge break costs to exit early, so you can lock in a new rate without penalty. Our team can run a comparison across lenders to show whether refinancing or staying put makes more sense for your situation.

Call one of our team or book an appointment at a time that works for you. We work with investors across Australia and can help you structure your loan to match your repayment goals without triggering unnecessary costs.