Understanding Variable Rate Investment Loans
As a Defence member, you've likely considered buying an investment property to build long-term wealth. Variable rate investment loans offer flexibility that can work well with your military career, especially when you're posted to different locations or planning for your transition to civilian life.
A variable interest rate means your loan repayments can change when the lender adjusts their rates. While this might sound unpredictable, variable rates often start lower than fixed interest rates and can provide opportunities for savings when rates decrease.
How Variable Rates Affect Your Investment Strategy
When you're researching property options, understanding how variable rates impact your borrowing capacity is crucial. Your loan amount depends on several factors including your income, existing debts, and the property's rental yield potential.
Variable rate loans typically offer:
• Offset account facilities to reduce interest charges
• Redraw features for accessing extra repayments
• Interest rate discounts that may increase over time
• Flexibility to make additional repayments without penalties
These features can significantly impact your property investment strategy, particularly when considering negative gearing benefits.
Calculating Investment Loan Repayments
Calculating investment loan repayments with a variable rate requires considering potential rate movements. Most Defence members find it helpful to budget for rate increases of 1-2% above current levels.
For example, if you're buying a rental property worth $600,000 with an 80% loan to value ratio (LVR), your loan amount would be $480,000. At a variable interest rate of 6.5%, your monthly repayments would be approximately $3,038.
Remember that rental income can offset these costs. A town house or apartment with good rental yield can substantially reduce your out-of-pocket expenses.
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Book a chat with a Finance & Mortgage Brokers at Defence Loans today.
Investment Loan Application Process
The application process for investment property loans requires thorough documentation. You'll need to provide:
• Recent bank statements (usually 3-6 months)
• Defence pay statements
• Tax returns and Notice of Assessments
• Details about the property you're purchasing
• Rental appraisal or existing lease agreement
Defence members often have unique circumstances, such as deployment allowances or irregular income patterns, which experienced brokers understand well.
Accessing Investment Loan Options Across Australia
When you access investment loan options from banks and lenders across Australia, you'll discover varying features and benefits. Some lenders specialise in investment property loans and offer:
• Reduced lenders mortgage insurance (LMI) for investment properties
• Professional packages with interest rate discounts
• Streamlined application processes for additional properties
• Portfolio lending for expanding your investment property portfolio
Choosing Your Investment Property Type
Whether you're considering a stand alone dwelling, apartment, or town house, the property type affects your loan terms and rental returns. Stand alone dwellings typically offer better capital growth potential, while apartments might provide higher rental yields in certain markets.
Location matters significantly. Properties near Defence bases often maintain steady rental demand, making them attractive options for first investment property purchases.
Managing Loan to Value Ratios
Most lenders prefer investment property LVRs of 80% or below to avoid LMI. However, some Defence-friendly lenders offer higher LVRs with reasonable insurance premiums.
Stamp duty costs also impact your initial investment. Some states offer concessions for certain property types or first-time investors, which can affect your overall investment calculation.
Property Market Considerations
The property market fluctuates, and variable rates allow you to benefit when interest rates decrease. This flexibility suits Defence members who might need to sell or refinance due to posting requirements.
Building a successful investment property portfolio often starts with one well-researched property. Focus on locations with strong rental demand, reasonable purchase prices, and growth potential.
Variable rate investment loans offer the flexibility that many Defence members need while building wealth through real estate investment. Understanding these loan features helps you make informed decisions about your property investment journey.
Call one of our team or book an appointment at a time that works for you to discuss your investment loan options and develop a strategy that suits your Defence career and financial goals.
