Do You Know Variable Rate Investment Loans Work?

For property investors in Clyde and Clyde North, selecting the right investment loan structure is crucial for building wealth through property. Variable rate investment loans offer flexibility and potential advantages that can align with your property investment strategy. Understanding how these investment loan products work will help you maximise tax deductions and achieve financial freedom.

What Is a Variable Rate Investment Loan?

A variable rate investment loan is a type of property investment loan where the interest rate can change over time based on market conditions and lender policy decisions. Unlike a fixed interest rate that remains constant for a set period, variable interest rates fluctuate, which means your investment loan repayments can increase or decrease accordingly.

When buying an investment property, you'll need to decide between variable rate and fixed rate options. Variable rates typically provide more flexibility with features that can benefit your property investment strategy over the long term.

Key Investment Loan Features of Variable Rates

Variable rate investment loan products come with several investment loan features that make them attractive to property investors:

• Flexibility for additional repayments: You can typically make extra repayments without penalty, helping you reduce your loan amount faster
• Redraw facilities: Access to funds you've paid above your minimum repayment requirements
• Interest rate discounts: Potential for rate discount benefits when market rates decrease
• No break costs: Unlike fixed rates, you can refinance or pay out your investment loan without incurring significant fees
• Offset account options: Some variable loans allow offset accounts to reduce interest charges using your savings

Investment Loan Benefits for Property Investors

The investment loan benefits of choosing a variable rate include:

Tax Advantages: With an investment property loan, the interest you pay is generally a claimable expense. Variable rates on interest only investment loans can help you maximise tax deductions while managing cash flow. Negative gearing benefits allow you to offset investment property expenses against your taxable income.

Portfolio Growth Flexibility: Variable rates provide the flexibility to adapt your investment loan refinance strategy as your circumstances change. This is particularly valuable for investors looking to leverage equity from existing properties to expand their portfolio.

Interest Only Options: Many investors choose interest only investment loan structures to minimise repayments and maximise rental income against expenses. This approach allows you to use your passive income more effectively for other investments or living expenses.

Understanding Investment Loan Interest Rates

Investor interest rates differ from owner-occupier rates and are influenced by several factors:

• Your investor deposit amount (typically requiring at least 10-20% deposit)
• Loan to value ratio (LVR) - higher LVRs may attract higher rates or require Lenders Mortgage Insurance (LMI)
• The property type and location (apartments may have different rates than houses)
• Your borrowing capacity and financial position
• Whether you choose principal and interest or interest only repayments

At Cairncross Group Capital, we can access investment loan options from banks and lenders across Australia, helping you find competitive investor interest rates suited to your situation.

Calculating Investment Loan Repayments

Calculating investment loan repayments requires considering several factors:

1. Investment loan amount: How much you need to borrow after your investor deposit
2. Interest rate: The current variable interest rate offered by your lender
3. Loan term: Typically 25-30 years for investment property finance
4. Repayment structure: Interest only versus principal and interest
5. Need rental income: Assessing the vacancy rate and expected rental returns

Your rental property loan repayments should ideally be covered substantially by your rental income. However, many investors accept some negative gearing where expenses exceed income for the tax benefits this provides.

Important Considerations for Clyde and Clyde North Investors

When applying for an investment loan application in the Clyde and Clyde North areas, consider:

Local Market Factors: Understanding local rental yields, vacancy rates, and capital growth potential helps determine your property investment strategy. The growth in these suburbs makes them attractive for investors seeking portfolio growth.

Additional Costs: Beyond your loan amount, factor in stamp duty, body corporate fees (for units), property management, maintenance, and insurance as claimable expenses.

Equity Release: As your property increases in value, you can leverage equity to purchase additional investment properties, accelerating your path to financial freedom.

Borrowing Capacity: Lenders assess your investor borrowing capacity differently than for owner-occupiers. They typically include rental income (sometimes at 80% to account for vacancy rates and expenses) when calculating what you can borrow.

Variable Rate vs Fixed Rate: Making the Choice

While this article focuses on variable rates, understanding the distinction helps inform your decision:

Variable Rate Advantages:

• Benefit from rate decreases
• Flexibility to make extra repayments
• No lock-in period or break costs
• Access to more loan features

Fixed Rate Considerations:

• Certainty of repayments
• Protection if rates increase
• Limited flexibility for extra repayments
• May incur costs if you need to exit early

Many investors use a split loan strategy, combining both variable and fixed portions to balance flexibility with some certainty. Our team at Cairncross Group Capital can help you explore these investment loan options.

Investment Loan Refinance Opportunities

Reviewing your rental property loan regularly ensures you're receiving competitive rates and suitable loan features. An investment loan refinance might be appropriate when:

• You can secure lower investor interest rates
• You want to release equity for another property purchase
• Your current loan lacks features that would benefit your strategy
• You're approaching the end of an interest only period
• You want to consolidate debt

Our refinancing services help property investors in Clyde and Clyde North reassess their investment property finance structure as their circumstances and the market evolve.

Working with Cairncross Group Capital

As your local mortgage broker in Clyde North, Victoria, we understand the investment opportunities in your area. We help property investors access investment loan products from multiple lenders, comparing:

• Investment loan interest rates across different lenders
• Investment loan features and flexibility
• LVR requirements and LMI costs
• Interest only periods available
• Offset and redraw facilities

Our expertise means we can structure your investment property rates and loan features to align with your goals for building wealth through property.

Whether you're buying your first investment property or expanding an existing portfolio, understanding variable rate investment loans positions you to make informed decisions. The flexibility, potential for interest rate discounts, and valuable loan features make variable rates a popular choice among Australian property investors.

Call one of our team or book an appointment at a time that works for you to discuss your investment loan application and explore how we can support your property investment journey in Clyde and Clyde North.