When buying an investment property, understanding the features of variable rate loans can make a significant difference to your property investment strategy. Variable interest rate loans offer flexibility that many property investors find appealing, particularly when building an investment property portfolio.
What Makes Variable Rate Investment Loans Different
Variable rate investment loans fluctuate with market conditions, meaning your repayments can change throughout the loan term. Unlike fixed interest rate loans, variable rates move up or down based on economic factors and lender decisions. This flexibility can work in your favour during periods of declining interest rates.
Key characteristics of variable rate investment loans include:
- Interest rates that adjust with market movements
- Access to additional loan features and facilities
- Potential for interest rate discounts based on your borrowing profile
- Ability to make additional repayments without penalty
Essential Features of Variable Rate Investment Loans
Offset Accounts
Many variable rate investment loans offer offset account facilities, allowing you to reduce interest charges on your loan amount while maintaining access to your funds. This feature can be particularly valuable for property investors managing cash flow from rental properties.
Redraw Facilities
This feature allows you to withdraw any additional repayments you've made above the minimum required amount. For investment properties, this provides financial flexibility to fund property maintenance, improvements, or even purchase additional properties.
Interest-Only Payment Options
Many investors choose interest-only repayments for their rental property loan to maximise negative gearing benefits and improve cash flow. Variable rate loans typically offer this option for specified periods.
Ready to get started?
Book a chat with a Finance & Mortgage Broker at Cairncross Group Capital today.
Loan to Value Ratio Considerations
When applying for an investment loan, lenders assess your loan to value ratio (LVR) differently than owner-occupied properties. Most lenders require a maximum LVR of 80% for investment properties to avoid lenders mortgage insurance (LMI). However, some lenders may accept higher LVRs with LMI.
Factors affecting your LVR include:
- Property type (apartment, town house, or stand alone dwelling)
- Location and market conditions
- Your existing borrowing capacity
- Rental yield potential of the investment property
Application Process for Variable Rate Investment Loans
The investment loan application process involves several steps that differ from standard home loans. Lenders require comprehensive documentation including:
- Recent bank statements showing your financial position
- Evidence of deposit funds and genuine savings
- Rental appraisal for the investment property
- Details of any existing investment property portfolio
- Proof of income and employment
When you research property options, consider how different property types affect lending criteria. Lenders may have varying policies for apartments versus stand alone dwellings, which can impact your loan terms and interest rate.
Calculating Investment Loan Repayments
Calculating investment loan repayments for variable rate loans requires considering potential rate movements. Your Investment Loan Interest Rate will determine your ongoing costs, but with variable rates, these costs can change.
Key factors in repayment calculations include:
- Current variable interest rate offered by lenders
- Loan term and repayment structure
- Whether you choose principal and interest or interest-only repayments
- Potential for interest rate discounts based on your relationship with the lender
Accessing Investment Loan Options
To access Investment Loan options from banks and lenders across Australia, working with experienced mortgage brokers can provide significant advantages. Different lenders have varying criteria for investment properties, and some may specialise in particular property types or investor profiles.
Considerations when comparing investment loan options include:
- Interest rate margins above the standard variable rate
- Available loan features and their associated costs
- Lender policies on different property types
- Serviceability requirements and borrowing capacity assessments
Property Investment Strategy Integration
Variable rate loans can complement various property investment strategies. Whether you're purchasing your first investment property or expanding an existing portfolio, the flexibility of variable rates allows you to adapt to changing market conditions.
For those in Beaconsfield and Beaconsfield Upper looking to invest in real estate, consider how variable rate features align with your investment goals. The ability to make additional repayments during periods of strong rental yield, or utilise redraw facilities when opportunities arise, makes variable rates attractive for active property investors.
Stamp Duty and Cost Considerations
When buying a rental property, factor stamp duty and other purchase costs into your overall investment calculations. Variable rate loans may offer features that help manage these upfront costs, such as capitalising certain fees or providing flexible repayment structures during the initial settlement period.
Working with local mortgage brokers who understand the Beaconsfield property market can help you structure your investment loan to accommodate these costs while maintaining healthy cash flow from your rental property.
Variable rate investment loans offer flexibility and features that can enhance your property investment returns. The key is understanding how these features align with your investment strategy and financial situation. With proper planning and professional guidance, variable rate investment loans can be powerful tools for building wealth through property investment.
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 property investment goals.
