Variable Rate Investment Loans: Key Features to Know

Understanding Variable Rate Investment Loans

When you're buying an investment property, choosing the right loan structure is crucial to your property investment strategy. Variable rate investment loans offer flexibility and features that can help you maximise tax deductions and build wealth over time.

For current and former Australian Defence Force members, understanding the investment loan features available can make a significant difference to your portfolio growth and long-term financial freedom. Let's explore what makes variable rate loans a popular choice among property investors.

What Makes Variable Rates Different?

Unlike fixed interest rates that remain unchanged for a set period, variable interest rates can move up or down based on market conditions. This means your investment loan repayments may fluctuate, but you'll also gain access to features that fixed rate loans typically don't offer.

The key advantage? Flexibility. Variable rate loans often come with additional features that can help you manage your investment property finance more effectively and potentially save thousands of dollars over the life of your loan.

Core Features of Variable Rate Investment Loans

When you access investment loan options from banks and lenders across Australia, you'll discover several valuable features that come with variable rates:

Redraw Facilities

Make extra repayments when you have surplus funds and redraw them later if needed. This feature helps you reduce interest costs while maintaining access to your money for future investment opportunities or property expenses.

Offset Accounts

Link a transaction account to your investment loan, and the balance in that account offsets the interest charged on your loan amount. If you have $20,000 in your offset account and a $400,000 investment loan amount, you'll only pay interest on $380,000.

Unlimited Additional Repayments

Pay more than your minimum repayment without penalties. This helps reduce your loan principal faster and can significantly decrease the total interest paid over time.

Interest Only Options

Many investors choose interest only investment loans to maximise their negative gearing benefits and keep repayments lower. This approach helps with cash flow management while you're building wealth through property appreciation.

Portability

Transfer your loan to a different property without reapplying. This feature is particularly valuable for ADF members who may relocate frequently or want to expand their property portfolio.

Interest Rate Discounts and Negotiations

One significant advantage of variable rate loans is the potential for interest rate discounts. Lenders often provide rate discounts based on:

• Your loan to value ratio (LVR)
• The size of your loan amount
• Your borrowing history and relationship with the lender
• Professional packages that may be available to ADF members

As a Defence Force member, you may have access to no LMI loans, which can significantly reduce your upfront costs and improve your investor borrowing capacity. This means you might need a smaller investor deposit to get started with your property investment strategy.

Calculating Investment Loan Repayments

When calculating investment loan repayments, you'll need to consider several factors:

1. Your loan amount and interest rate
2. Whether you choose principal and interest or interest only repayments
3. The loan term (typically 25-30 years)
4. Any offset account balances that reduce your interest
5. Potential rental income from the property

Most investors structure their loans to maximise tax benefits. The interest you pay on your rental property loan is a claimable expense, which can help offset the rental income you receive and create negative gearing benefits.

Tax Benefits and Claimable Expenses

Variable rate investment loans offer the same tax advantages as other investment loan products. You can claim:

• Loan interest payments
• Lenders Mortgage Insurance (LMI) if applicable
• Body corporate fees
• Property management costs
• Maintenance and repairs
• Depreciation on the building and fixtures
• Stamp duty (spread over five years if the property is used to generate income)

These claimable expenses can help reduce your taxable income and improve your cash flow position, especially during periods when you experience a vacancy rate or unexpected maintenance costs.

Leveraging Equity for Portfolio Growth

As your investment property increases in value, you can leverage equity to fund additional purchases. Variable rate loans typically allow equity release without refinancing penalties, making it easier to access your property's increased value.

This strategy is particularly effective for building wealth over time. By using the equity in your first investment property, you can secure a deposit for your next purchase and continue expanding your property portfolio.

When to Consider Investment Loan Refinancing

Even with a variable rate, there may come a time when investment loan refinancing makes sense. Consider refinancing if:

• Your current investor interest rates are significantly higher than current market rates
• You want to access additional investment loan features
• You need to consolidate multiple loans
• You want to release equity for further property investment
• Your lender won't negotiate a better rate discount

Regular loan health checks can help identify opportunities to improve your investment property rates and loan structure.

Making Your Investment Loan Application

When submitting an investment loan application, lenders will assess:

• Your serviceability including existing debts
• Your employment history and income
• The property's potential rental income (usually calculated at 80% to account for vacancy rates and expenses)
• Your investor deposit amount
• Your overall borrowing capacity

ADF members often have stable employment histories and reliable income, which can work in your favour during the application process. Understanding your borrowing capacity before you start property hunting helps you set realistic investment goals.

Building Passive Income Through Property Investment

The ultimate goal of most property investors is to create passive income that contributes to financial freedom. Variable rate loans support this objective by offering flexibility as your circumstances change.

Whether you're aiming for positive cash flow properties or focusing on capital growth with negative gearing, having access to the right investment loan options is essential to your success.

Variable rate investment loans provide the flexibility and features that help you adapt your property investment strategy as markets change and your portfolio grows. The key is understanding which features matter most for your specific situation and how to use them effectively.

If you're ready to explore your investment loan options or want to discuss whether a variable rate suits your property investment goals, our team understands the unique circumstances of Defence Force members. Call one of our team or book an appointment at a time that works for you.