Investment Loan Variable Rates and Common Mistakes

When you're considering buying an investment property, understanding the ins and outs of variable interest rates can make a significant difference to your investment property portfolio. Variable rate investment loans offer flexibility that many property investors find appealing, but they also come with considerations that require careful thought.

What Are Variable Rate Investment Loans?

A variable interest rate on your investment loan means the rate can fluctuate based on market conditions and lender decisions. Unlike a fixed interest rate that stays the same for a set period, variable rates move up and down, which directly affects your loan repayments.

For those buying a rental property, whether it's an apartment, town house, or stand alone dwelling, variable rates often provide:

• Lower initial rates compared to fixed options
• Flexibility to make extra repayments
• Access to offset accounts and redraw facilities
• No break costs if you want to refinance

How Variable Rates Affect Your Investment Strategy

When you invest in real estate, calculating investment loan repayments becomes crucial for your cash flow planning. Variable rates mean your repayments can change, affecting your rental yield calculations and overall property investment strategy.

The loan to value ratio (LVR) also plays a role here. If you're borrowing more than 80% of the property value, you'll need lenders mortgage insurance (LMI), which adds to your upfront costs. Variable rates might help offset some ongoing costs, but you need to factor in potential rate rises.

Interest Rate Discounts and Investment Loan Options

Many lenders offer interest rate discounts on variable investment loans, particularly if you have a strong borrowing capacity or existing relationship with the bank. When applying for an investment loan, these discounts can significantly impact your Investment Loan Interest Rate.

The application process typically requires:

1. Recent bank statements
2. Proof of income and employment
3. Details about the property you're purchasing
4. Information about your existing debts and assets

For your first investment property, lenders often have a streamlined application process, though they'll still want to research property values and rental potential in your chosen area.

Understanding the Costs Beyond Interest Rates

Variable rates are just one part of your investment equation. Other costs include:

• Stamp duty - varies by state and property value
• LMI premiums if borrowing above 80% LVR
• Ongoing fees such as annual package fees
• Property management and maintenance costs

These costs affect whether your property generates positive cash flow or operates under negative gearing arrangements.

Common Mistakes with Variable Rate Investment Loans

Many investors make the mistake of focusing solely on the advertised rate without considering the total loan package. Some rental property loan products offer attractive headline rates but include higher fees or fewer features.

Another common error is not stress-testing your finances against potential rate rises. Even if rates are low when you buy, they can increase, affecting your ability to service the loan amount comfortably.

Making the Most of Variable Rate Features

Property investment loan features on variable products often include:

• Offset accounts - reducing interest on your outstanding balance
• Redraw facilities - accessing extra repayments when needed
• Split loan options - combining variable and fixed portions
• Professional packages - bundled products with fee waivers

These features can enhance your investment strategy, particularly when building a larger investment property portfolio.

Getting Professional Guidance

The property market can be complex, and accessing Investment Loan options from banks and lenders across Australia requires expertise. Different lenders have varying appetites for investment lending, and their criteria can change regularly.

Working with experienced mortgage brokers means you can compare options across multiple lenders, understand the true cost of different loan structures, and find solutions that align with your investment goals. Whether you're buying your first rental property or expanding an existing portfolio, professional guidance can help you avoid costly mistakes and maximise your investment potential.

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 works for your situation.