Fixed Rate Mortgage Investments

Fixed-rate mortgage investments can give investors certainty. When you lock in a fixed rate, you know exactly how much income you’ll receive and when you’ll receive it. In a falling interest rate environment, locking in a higher fixed rate can mean earning more than you would with a variable rate. In a rising rate environment, fixed rates still offer certainty, but you may miss out on future increases. The reality, however, is more complex.

Borrower demand for fixed versus variable mortgages also shifts significantly over time. Fixed-rate demand peaked in 2021 at nearly 50% of all mortgages. By late 2024, around 98% of new mortgages were variable (RBA, 2025).

A common question is: Where are interest rates heading? When the RBA cash rate was close to zero, the only likely direction was up. That doesn’t mean fixed-rate investments were unattractive. When we set fixed rates for borrowers and investors, we factor in expected future rate movements. In other words, today’s fixed rate already reflects where we think interest rates are going.

Variable rates become more valuable when interest rates rise faster or higher than expected. In that case, your income increases in real time and may outperform a fixed-rate investment. The same applies when rates fall more slowly than predicted—variable rates may deliver a better return because fixed rates may have already priced in larger or faster cuts that don’t eventuate.

The key takeaway is that interest rate movements are difficult to predict. Fixed rates offer certainty, but they also lock in a return that may end up being lower than the prevailing variable rate. Many investors choose to diversify—holding a mix of fixed and variable rate investments. ASL offers both options through our mortgage products.

We could also discuss credit spreads—the “risk premium” built into interest rates—but we’ll leave that for another time. For now, assume credit spreads remain unchanged.