How to Use Variable Rate Investment Loans for Property

Understanding Variable Rate Investment Loans

When buying an investment property, one of the most significant decisions you'll make is choosing between a variable rate and fixed rate loan. Variable interest rate investment loans offer flexibility and features that can align well with your property investment strategy, particularly for investors in Newstead looking to build wealth through property.

A variable rate investment loan is a type of property investment loan where the interest rate fluctuates based on market conditions and lender decisions. Unlike fixed interest rate products, your investor interest rates can move up or down throughout the life of your loan, which directly affects your investment loan repayments.

Key Investment Loan Features of Variable Rate Products

Variable rate investment loan products typically come with features that fixed rate loans don't offer:

• Redraw facilities: Access additional repayments you've made above the minimum requirement
• Offset accounts: Link a transaction account to reduce the interest charged on your loan amount
• Extra repayments: Pay more than the minimum without penalties, reducing your principal faster
• Flexible repayment options: Switch between interest only and principal and interest repayments
• Portability: Transfer your loan to a different investment property without refinancing

These investment loan features provide property investors with greater control over their investment property finance and can help maximise tax deductions and cash flow management.

Investment Loan Benefits for Newstead Property Investors

Choosing a variable rate for your property investor loan offers several advantages:

Rate Discount Opportunities: Lenders regularly review their rates, and when the market moves favourably, you benefit from interest rate discounts without needing to refinance. This can significantly reduce your investment loan repayments over time.

Flexibility for Portfolio Growth: If you're planning to expand your property portfolio, variable rate loans make it easier to access equity release and leverage equity from your existing properties. This flexibility supports your long-term financial freedom goals.

Tax Benefits: The ability to claim interest as one of your claimable expenses means you can maximise tax deductions. Combined with negative gearing benefits, this can make your investment more tax-effective.

Calculating Investment Loan Repayments

Understanding how to calculate your investment loan repayments is crucial for proper budgeting. Your repayments depend on several factors:

1. Investment loan amount: The total you borrow
2. Investment loan interest rate: The current variable interest rate
3. Loan term: Typically 25-30 years
4. Repayment type: Interest only or principal and interest
5. Loan to value ratio (LVR): The percentage you're borrowing against the property value

Many Newstead investors choose interest only investment loans initially to maximise cash flow and passive income from rental income. This approach can help cover expenses like body corporate fees, stamp duty (if financed), and maintenance costs while building wealth through capital growth.

Understanding Investor Deposit Requirements and LVR

Your investor deposit plays a crucial role in your investment loan application. Most lenders require a minimum deposit of 10-20% of the property value. The lower your loan to value ratio (LVR), the more favourable your investor interest rates typically are.

If your LVR exceeds 80%, you'll likely need to pay Lenders Mortgage Insurance (LMI), which protects the lender if you default. While LMI increases your upfront costs, it allows you to enter the property market sooner with a smaller deposit.

Access Investment Loan Options from Banks and Lenders Across Australia

Working with experienced mortgage brokers gives you the ability to access investment loan options from banks and lenders across Australia. At fundfin., we can help you compare:

• Investment property rates from multiple lenders
• Various investment loan products suited to your circumstances
• Interest rate structures and fee arrangements
• Policy differences around rental income assessment and vacancy rate considerations

This comprehensive approach ensures you secure suitable investment property finance for your Newstead property investment.

Interest Only vs Principal and Interest

Deciding between interest only investment and principal and interest repayments depends on your property investment strategy:

Interest Only Investment Loans allow you to:

• Minimise monthly repayments
• Improve cash flow for portfolio growth
• Maximise negative gearing benefits
• Use surplus funds for other investments

Principal and Interest Loans help you:

• Build equity faster
• Pay less interest over the loan term
• Own your rental property loan outright sooner
• Reduce risk over time

Many investors start with interest only periods (typically 1-5 years) before converting to principal and interest, balancing immediate cash flow needs with long-term wealth building.

Investment Loan Refinance Considerations

Regularly reviewing your investment property rates and loan structure is important. An investment loan refinance might be worth considering if:

• You can secure a lower investment loan interest rate
• You need to release equity for additional purchases
• Your current lender's features don't match your needs
• You're consolidating multiple rental property loans
• You want to adjust your loan structure

Refinancing can help optimise your investor borrowing strategy as your circumstances and the market evolve. Understanding your borrowing capacity is essential when considering refinancing options.

Making Your Investment Loan Application

When preparing your investment loan application, lenders assess:

• Your income and employment stability
• Existing debts and credit history
• The property's expected rental income (usually calculated at 80% to account for vacancy rate)
• Your deposit and savings history
• Your overall investment property finance goals

Lenders typically need rental income to demonstrate the property can contribute to repayments, though they apply rental income shading to account for potential vacancies and maintenance periods.

Building Wealth Through Property Investment

Property investment remains a proven strategy for building wealth and achieving financial freedom. Variable rate investment loans provide the flexibility needed to adapt to changing market conditions while maintaining access to features that support your goals.

Whether you're purchasing your first investment property or expanding an existing portfolio, understanding your investment loan options, the tax benefits available, and how to structure your borrowing effectively can make a significant difference to your long-term success.

The team at fundfin. specialises in helping Newstead investors access suitable investment loan products tailored to their circumstances. We work with you to understand your property investment strategy and find solutions that support your wealth-building objectives.

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