Understanding Variable Rate Investment Loans
When buying an investment property, one of the most important decisions you'll make is choosing between a variable interest rate and a fixed interest rate. For many property investors in Oakleigh, variable rate investment loan products offer flexibility and features that align well with their property investment strategy.
A variable interest rate means your rate can move up or down based on market conditions and lender decisions. While this might sound uncertain, variable rate loans typically come with investment loan features that can significantly benefit your portfolio growth.
Key Investment Loan Features of Variable Rates
Variable rate investment loan options offer several advantages:
- Extra repayment flexibility: Make additional payments without penalty
- Redraw facilities: Access funds you've paid ahead when needed
- Offset accounts: Reduce interest charged on your loan amount
- Rate discount opportunities: Benefit when lenders reduce their rates
- No break costs: Switch lenders or restructure without penalties
These investment loan benefits make variable rates particularly appealing for investors focused on building wealth through property while maintaining financial flexibility.
The Power of Extra Repayments on Investment Loans
Making extra repayments on your property investment loan can substantially reduce your interest costs and loan term. Even small additional amounts can make a meaningful difference over time.
For example, if you have an investment loan amount of $500,000 at a 6% variable interest rate over 30 years, adding just $200 extra per month could save you over $90,000 in interest and reduce your loan term by several years.
You can explore how extra payments affect your investment property finance using our extra repayment calculator to see the potential impact on your specific situation.
Principal and Interest vs Interest Only Investment
When considering extra repayments, it's important to understand your loan structure. Many investors start with interest only investment loans to maximise tax deductions and improve cash flow. However, making extra repayments (which reduce the principal) on an interest only loan gives you the benefit of:
- Building equity in your property faster
- Reducing your overall loan to value ratio (LVR)
- Creating a buffer for periods of vacancy or unexpected expenses
- Maintaining access to those funds through redraw facilities
Switching to principal and interest repayments, or making extra repayments on an interest only loan, can accelerate your path to financial freedom while still maximising the tax benefits available to property investors.
How Extra Repayments Impact Your Tax Position
One consideration for Oakleigh investors is how extra repayments affect negative gearing benefits. When you make extra repayments, you reduce the loan balance and therefore the interest charged. Since investment loan interest is tax-deductible, this reduces your claimable expenses.
However, many investors find the long-term benefits of reduced debt outweigh the short-term reduction in tax deductions. The key is developing a property investment strategy that balances:
- Maximising tax deductions in the short term
- Building equity and reducing debt for long-term wealth
- Maintaining sufficient passive income from rental income
- Planning for property portfolio growth
Calculating Investment Loan Repayments and Extra Payments
Before committing to extra repayments, you should have a clear understanding of calculating investment loan repayments and how additional funds will affect your position. Our loan repayment calculator can help you model different scenarios.
Consider these factors when planning extra repayments:
- Cash flow: Ensure you maintain sufficient funds for periods when vacancy rates affect rental income
- Emergency buffer: Keep accessible funds for unexpected property maintenance or body corporate fees
- Other investments: Weigh whether extra loan repayments provide better returns than other opportunities
- Lenders Mortgage Insurance (LMI): Extra repayments reduce your LVR, potentially eliminating LMI on future refinancing
Accessing the Right Investment Loan Options
At Blue Lion Lending, we help Oakleigh investors access investment loan options from banks and lenders across Australia. Different lenders offer varying investment property rates, investor interest rates, and rate discount structures.
When you work with our team, we assess:
- Your investor deposit and borrowing capacity
- Available investor borrowing options based on your rental property loan needs
- Investment loan products that match your strategy
- Opportunities for investment loan refinance to improve your position
The investment loan application process involves reviewing your income, existing debts, and the investment property's potential rental income. We also help you understand costs like stamp duty and how to leverage equity from existing properties for your next investment.
Strategic Use of Variable Rate Features
Sophisticated property investors in Oakleigh use variable rate features strategically. An offset account linked to your investment property loan can reduce interest charged while keeping funds accessible. This is particularly valuable for managing:
- Upcoming property maintenance costs
- Periods between tenants
- Funds earmarked for the next investment property deposit
- Tax payments from rental income
Some investors also use the redraw facility as a form of equity release, accessing funds they've paid ahead for renovation work or acquiring their next rental property loan.
When to Consider Investment Loan Refinance
The variable rate market changes regularly, and what was a solid deal when you first obtained your property investor loan might not be optimal now. Consider refinancing your investment loans when:
- You can access better investor interest rates
- Your LVR has improved, reducing or eliminating LMI
- You want to leverage equity for portfolio expansion
- You need different investment loan features for your current strategy
- Rate discounts available in the market exceed your current offer
Our refinancing specialists can review your current position and identify whether better investment loan options exist across our panel of lenders.
Your Next Steps with Blue Lion Lending
Whether you're buying your first investment property or expanding an existing portfolio, understanding variable rate loans and the strategic use of extra repayments is crucial for building wealth through property.
Our experienced mortgage brokers in Oakleigh specialise in investment property finance and can help you structure loans that support your long-term goals while maximising tax benefits and minimising costs.
Call one of our team or book an appointment at a time that works for you. We'll review your situation, explain the investment loan options available, and help you develop a property investment strategy that puts you on the path to financial freedom.