When to Choose a Variable Rate Investment Loan

Understanding Variable Rate Investment Loans

When buying an investment property, one of the most important decisions you'll make is selecting the right investment loan structure. Variable rate loans offer flexibility and potential advantages that align well with many property investment strategies. Understanding how these investment loan products work can help you make informed decisions about building wealth through property.

A variable interest rate investment loan means your interest rate can move up or down based on market conditions and lender decisions. This differs from a fixed interest rate loan, where your rate remains constant for a set period. For property investors seeking to build wealth and achieve financial freedom, variable rates often provide features that support long-term portfolio growth.

Key Investment Loan Features of Variable Rates

Variable rate investment property loans come with several investment loan features that make them attractive to investors:

• Flexibility in repayments: Most variable rate loans allow you to make additional repayments without penalties, helping you reduce your loan amount faster
• Redraw facilities: Access funds you've paid ahead, providing liquidity for property maintenance, body corporate fees, or other investment opportunities
• Offset accounts: Link transaction accounts to reduce the interest charged on your investment loan
• Rate discount opportunities: Benefit from investor interest rates that may decrease when the market moves favourably
• Portability: Transfer your loan to a different investment property without refinancing

These investment loan benefits provide the adaptability many property investors need as their circumstances and property investment strategy evolve.

Interest Only Investment Loan Options

Many investors choose interest only investment loans when using variable rates. This structure means you only pay the interest component for a specified period, typically five years, keeping your repayments lower and potentially maximising tax deductions on claimable expenses.

Interest only repayments can improve cash flow, which is particularly valuable when managing vacancy rates or unexpected property expenses. However, it's important to understand that you're not reducing the principal loan amount during this period. Some investors use the saved funds to build deposits for additional properties, leveraging equity to accelerate portfolio growth.

Alternatively, principal and interest investment loans reduce your debt over time, building equity faster in your rental property loan. The choice between these options depends on your property investment strategy and financial goals.

Calculating Investment Loan Repayments

Calculating investment loan repayments on a variable rate requires understanding that your payments may change over time. Your repayments depend on:

1. The investment loan amount you borrow
2. The current variable interest rate
3. Whether you choose interest only or principal and interest
4. Your loan term
5. Your loan to value ratio (LVR)

Higher LVR loans often attract Lenders Mortgage Insurance (LMI), which protects the lender if you borrow more than 80% of the property value. This insurance premium can be added to your loan amount or paid upfront. Your investor deposit amount directly impacts your LVR and whether LMI applies.

Tax Benefits and Investment Property Finance

Property investment offers several tax advantages that work alongside your investment property rates. Negative gearing benefits allow you to offset losses from your rental income against your taxable income. When your rental property expenses, including interest payments, exceed your rental income, you may reduce your overall tax liability.

Claimable expenses on investment properties include:

• Loan interest payments
• Property management fees
• Building depreciation
• Maintenance and repairs
• Body corporate fees
• Insurance premiums
• Stamp duty (in some circumstances)

To maximise tax deductions, maintaining detailed records of all investment property expenses is essential. Variable rate loans often provide better access to these deductions through their flexible repayment structures.

Access Investment Loan Options from Multiple Lenders

When seeking investment property finance, you can access investment loan options from banks and lenders across Australia. Different lenders offer varying investor interest rates, loan features, and assessment criteria. Some lenders specialise in property investor loans and understand the nuances of rental income, vacancy rates, and portfolio lending.

Working with a mortgage broker like Empire Road Investments means comparing investment loan options across multiple lenders without the hassle of individual applications. This approach helps identify investment loan products that align with your circumstances and property investment strategy.

Investment Loan Refinance Opportunities

Variable rates create ongoing opportunities for investment loan refinance. As your property increases in value and you build equity, refinancing can help you:

• Secure better investor interest rates
• Access equity release for additional investments
• Consolidate multiple investment loans
• Switch between interest only and principal and interest structures
• Leverage equity for portfolio expansion

Regular refinancing reviews ensure your investment property rates remain competitive and your loan structure supports your evolving strategy. Equity release through refinancing provides capital for investor deposits on additional properties without requiring substantial savings.

Building Passive Income Through Property Investment

The ultimate goal for many property investors is generating passive income and achieving financial freedom. Variable rate investment loans support this objective by providing flexibility as your portfolio grows. Your rental income, minus expenses including loan repayments, contributes to your passive income stream.

Successful property investors regularly review their borrowing capacity, monitor their portfolio growth, and adjust their strategy based on market conditions. Variable rates allow you to capitalise on favourable interest rate movements while maintaining the flexibility to respond to changing circumstances.

Making Your Investment Loan Application

Your investment loan application process differs slightly from standard home loans. Lenders assess your ability to service the investment loan based on your income, existing debts, and the potential rental income from the property. They typically apply a buffer to interest rates and may only count 80% of expected rental income when calculating your borrowing capacity.

Documentation for your investment loan application typically includes:

• Proof of income and employment
• Details of existing assets and liabilities
• Information about the investment property
• Evidence of your investor deposit
• Rental appraisals or existing tenancy agreements

Understanding these requirements helps streamline your application and positions you for successful approval.

Variable rate investment loans offer flexibility, features, and potential cost savings that align with diverse property investment strategies. Whether you're purchasing your first rental property or expanding an established portfolio, understanding how variable rates work helps you make informed decisions about your investment property finance.

Call one of our team or book an appointment at a time that works for you to discuss your investment loan needs and explore your options.