Investment Loan Comparison: What to Know

Comparing investment loans means looking beyond advertised rates to understand how each product supports your specific property strategy.

For investors in Hawthorn, where median unit prices sit around $600,000 and established period homes often exceed $2 million, the choice between lenders directly affects your borrowing capacity, tax position, and ability to scale a portfolio. An interest rate difference of 0.3% matters less than loan features that align with whether you're holding for capital growth in the Glenferrie Road precinct or targeting rental yield from newer apartments near Swinburne University.

Variable Rate or Fixed Rate for Property Investment

A variable rate investment loan adjusts with market conditions and typically offers more flexibility, while a fixed rate locks your repayment for a set term but restricts additional repayments and refinancing options.

Consider an investor purchasing a $750,000 two-bedroom apartment in Hawthorn with a 20% deposit. If they choose a variable rate product, they can make unlimited extra repayments during strong rental periods, redraw those funds for a future deposit, and refinance without penalty if a better rate becomes available. A fixed rate on the same property would cap extra repayments at $10,000 to $30,000 per year depending on the lender, and breaking the loan early to access equity could trigger break costs of $5,000 to $15,000.

Variable rates suit investors planning to build a portfolio quickly because they preserve access to equity and allow rapid response to market opportunities. Fixed rates provide certainty for investors who prefer stable budgeting or expect rate rises, but the trade-off is reduced flexibility during the fixed term.

Interest Only or Principal and Interest Repayments

Interest only repayments reduce monthly costs and increase cash flow, while principal and interest repayments build equity faster but require higher serviceability.

An investor borrowing $600,000 at current variable rates with interest only repayments might pay around $2,400 per month, leaving more income available for a second deposit or to cover vacancy periods. The same loan on principal and interest repayments could require $3,200 per month, which builds equity but tightens cash flow and reduces borrowing capacity for additional properties.

Interest only periods typically run for one to five years on investment loans. During this period, rental income often covers the full repayment, creating positive or neutral cash flow. Once the interest only period ends, repayments increase as principal repayments commence. Investors planning to hold long-term often extend interest only periods through refinancing before the reversion date, maintaining cash flow while the property appreciates.

The decision depends on whether you prioritise building equity in one property or preserving serviceability to expand your portfolio. Interest only investment loans suit active investors focused on portfolio growth and negative gearing benefits, while principal and interest suits those closer to retirement or seeking to reduce debt.

Loan to Value Ratio and Lenders Mortgage Insurance

The loan to value ratio determines whether you'll pay Lenders Mortgage Insurance and how much equity remains available for future borrowing.

An investor purchasing a $900,000 townhouse in Hawthorn with a 15% deposit borrows at an 85% LVR, triggering LMI of approximately $18,000 to $22,000 depending on the lender. This cost can be capitalised into the loan amount, but it increases the total debt and reduces equity. Increasing the deposit to 20% eliminates LMI entirely, preserving $20,000 in equity and lowering the ongoing loan amount.

Some lenders offer lower LMI premiums or waive it for certain professions. Investment loans through these lenders can reduce upfront costs substantially, particularly for buyers stretching to enter the Hawthorn market where entry prices are higher than surrounding suburbs.

The LVR also affects your interest rate. Borrowing at 80% LVR typically attracts a lower rate than borrowing at 90% LVR, even after accounting for the LMI cost. The difference might be 0.15% to 0.25%, which compounds over the loan term.

Offset Accounts and Redraw Facilities

An offset account reduces interest charged by offsetting your balance against the loan, while a redraw facility allows you to withdraw extra repayments you've already made.

For investment properties, an offset account provides a distinct tax advantage. Interest charged on the full loan amount remains tax deductible, while your savings in the offset reduce that interest without altering the deductible loan balance. A redraw facility offers similar cash flow benefits but can complicate tax deductions if you redraw funds for personal use, as the ATO may split the loan into deductible and non-deductible portions.

Consider an investor with $50,000 in savings and a $600,000 investment loan. Placing that $50,000 in an offset account means they only pay interest on $550,000, saving around $200 per month, while the full $600,000 remains deductible. Using redraw to achieve the same outcome creates a tax record-keeping burden and potential issues if those funds are later used for a personal expense like a holiday or car.

Not all investment loan products include offset accounts. Some lenders charge higher rates for loans with offset, while others include it at no additional cost. Comparing investment loan features means calculating whether the offset benefit outweighs any rate difference.

Rate Discounts and Ongoing Loan Features

Rate discounts vary significantly between lenders based on your deposit size, loan amount, and whether you bundle other products like transaction accounts or insurance.

An investor borrowing $700,000 at 80% LVR might receive a 0.60% discount from one lender and a 0.85% discount from another, creating a rate difference of 0.25%. Over ten years, this difference represents approximately $12,000 in additional interest, assuming rates remain constant. However, the lender offering the smaller discount might provide a superior offset account, lower annual fees, or better serviceability calculations that allow you to borrow an additional $50,000 for your next deposit.

Investor interest rates also depend on whether the property will generate rental income. Lenders assess serviceability differently for investment properties, typically applying a rental income buffer of 80% to account for vacancy and maintenance costs. A property in Hawthorn close to public transport and Swinburne University often achieves lower vacancy rates than the lender assumes, but their serviceability calculation doesn't adjust for this.

Comparing investment loan options means requesting detailed product disclosure from multiple lenders and calculating total cost over your intended holding period, not just the first year. Use a loan repayment calculator to model different scenarios with varying rates, fees, and loan features.

How to Access Investment Loan Options Across Multiple Lenders

Accessing investment loan options from banks and lenders across Australia requires comparing eligibility criteria, rate structures, and serviceability policies that differ substantially between institutions.

Major banks, regional lenders, and specialist non-bank lenders all offer investment loan products, but their assessment methods vary. One lender might apply a 7.5% serviceability buffer and shade rental income by 20%, while another uses an 8% buffer and shades rental income by 25%. These differences directly affect how much you can borrow, which determines whether a property in Hawthorn fits within your budget.

Some lenders also restrict lending in certain postcodes or building types. A lender might decline an application for a studio apartment in a high-density development while approving a two-bedroom unit in the same suburb. Comparing investment loan products means understanding these overlays before submitting applications, as multiple declines can affect your credit file and future borrowing capacity.

Working with a mortgage broker in Hawthorn provides access to lender panels that include banks, credit unions, and specialist lenders you wouldn't reach directly. Brokers also understand which lenders suit specific property types and investment strategies, reducing time spent on applications that won't succeed.

Call one of our team or book an appointment at a time that works for you to compare investment loan products tailored to your property goals and financial position.

Frequently Asked Questions