Fixed vs Variable vs Split: Investment Loan Options

When buying an investment property, one of the most important decisions you'll face is choosing the right investment loan structure. Understanding the differences between fixed rate, variable rate, and split loan options can significantly impact your property investment strategy and your ability to build wealth through property.

For property investors in Paralowie and across Australia, selecting the appropriate investment loan product requires careful consideration of your financial goals, risk tolerance, and investment timeline. Let's explore each option to help you make an informed decision.

What is a Variable Rate Investment Loan?

A variable interest rate investment loan is one where your interest rate can change over time based on market conditions and decisions made by your lender. This type of investment loan offers flexibility and often comes with features that active property investors value.

Key benefits of variable rate investment loans include:

• Ability to make additional repayments without penalty
• Access to offset accounts to reduce interest charges
• Redraw facilities for accessing extra payments
• Potential to benefit from interest rate discounts when rates fall
• More flexibility to refinance or switch lenders

Variable investment loan interest rates tend to start slightly lower than fixed rates, though they can increase if market conditions change. For investors focused on building wealth property portfolios, the flexibility to make extra payments and access features like offset accounts can help maximise tax deductions and manage cash flow from rental income.

Understanding Fixed Rate Investment Loans

A fixed interest rate investment loan locks in your interest rate for a set period, typically between one and five years. This provides certainty around your investment property finance costs, making it easier to calculate investment loan repayments and plan your property investment strategy.

Advantages of fixed rate investment loans:

• Predictable repayments for budgeting purposes
• Protection from interest rate increases
• Certainty for calculating negative gearing benefits
• Easier to forecast rental property loan costs
• Peace of mind during periods of rate volatility

However, fixed rate loans typically have limitations. You may face restrictions on additional repayments, limited or no access to offset accounts, and potential break fees if you need to refinance your investment loan before the fixed period ends. If variable rates fall, you won't benefit from the reduction until your fixed term expires.

For investors with tight budgets or those who need certainty when calculating investment loan repayments against rental income, a fixed rate can provide valuable stability.

Split Loan Options: The Best of Both Worlds

A split loan structure divides your investment loan amount between fixed and variable portions, allowing you to access the benefits of both investment loan options. This approach is increasingly popular among property investors who want to balance security with flexibility.

With a split loan, you might choose to fix 50% of your loan amount while keeping the other 50% variable. The split can be adjusted to suit your needs - you might prefer a 70/30 or 60/40 division based on your risk tolerance and investment goals.

Benefits of split investment loans:

• Partial protection from rising investor interest rates
• Maintain some flexibility for extra repayments on the variable portion
• Access to features like offset accounts on the variable component
• Ability to benefit partially if rates decrease
• Balanced approach to managing investment property rates

Choosing the Right Option for Your Investment Strategy

The right investment loan structure depends on several factors specific to your situation. Consider these aspects when evaluating investment loan products:

Your cash flow situation: Do you need rental income to cover all your loan repayments, or can you manage periods of vacancy rate fluctuations? A fixed rate provides certainty, while variable offers flexibility if you have surplus cash for additional payments.

Investment timeline: If you're planning long-term portfolio growth and want to leverage equity from your investment property in coming years, variable or split loans offer more flexibility for investment loan refinancing.

Risk tolerance: Conservative investors who prefer predictable costs often favour fixed rates. Those comfortable with some uncertainty might prefer variable rates to maximise flexibility and potential savings.

Tax planning: The structure you choose affects how you maximise tax deductions. Interest only investment loans are popular with property investors as they keep repayments lower and maximise claimable expenses. Both fixed and variable investment loan options are available with interest only repayments.

Investment Loan Features to Consider

Beyond the interest rate structure, other investment loan features significantly impact your property investment strategy:

Interest only vs principal and interest: Many property investors choose interest only investment loans to minimise repayments and maximise tax benefits. This keeps more cash available for portfolio growth or to offset against other investments.

Loan to value ratio (LVR): Your investor deposit affects the LVR and whether you'll need Lenders Mortgage Insurance (LMI). A lower LVR may provide access to better investor interest rates and reduced lender risk.

Offset accounts: These can reduce the interest you pay on your investment loan amount while maintaining flexibility. However, they're typically only available with variable rate products.

Additional costs: Consider stamp duty, body corporate fees for apartments, and other claimable expenses when calculating your total investment property finance requirements.

Making Your Decision

When evaluating investment loan options, think about your broader property investment strategy. Are you focused on passive income through positive cash flow? Building long-term equity? Maximising negative gearing benefits for tax purposes? Your goals should guide your choice.

Property investors in Paralowie can access investment loan options from banks and lenders across Australia through experienced mortgage brokers who understand local market conditions and investment opportunities.

If you're buying your first investment property, a mortgage broker can help you understand how different investment loan products support your goals. They can assist with your investment loan application, explain how to leverage equity from existing properties, and help you compare investment loan interest rates across multiple lenders.

For those already building their portfolio, an investment loans specialist can review whether your current structure still serves your objectives or if refinancing could provide better terms or access to equity release for your next purchase.

Taking the Next Step

Choosing between fixed, variable, and split investment loan options is a significant decision that impacts your path to financial freedom through property investment. The right choice depends on your unique circumstances, goals, and risk tolerance.

At Simple Lending, we specialise in helping property investors throughout Paralowie access tailored investment property finance solutions. Whether you're purchasing your first rental property or expanding your portfolio, we can help you evaluate investment loan features, compare investor borrowing options, and structure your finance to support long-term portfolio growth.

Call one of our team or book an appointment at a time that works for you. We'll help you understand your investment loan options and find the structure that aligns with your property investment strategy.