Investment property financing through variable rate loans offers flexibility and potential cost advantages for property investors. Understanding the key terms and features associated with variable interest rate investment loans can help you make informed decisions when building your investment property portfolio.
Understanding Variable Interest Rates for Investment Properties
A variable interest rate on your investment loan means the rate can change over time based on market conditions and lender policies. Unlike fixed interest rate options, variable rates provide the opportunity to benefit when interest rates decrease, though they also carry the risk of increases.
When applying for an investment loan with variable rates, lenders assess your borrowing capacity based on several factors including:
• Your income and existing financial commitments
• The loan amount you're seeking
• The property type (apartment, townhouse, or stand-alone dwelling)
• Your loan to value ratio (LVR)
Most lenders require a minimum deposit of 20% to avoid lenders mortgage insurance (LMI) on investment properties, though some may accept lower deposits with LMI included in your loan structure.
Key Features of Variable Rate Investment Loans
Variable rate rental property loans typically offer several features that can enhance your property investment strategy:
Redraw Facilities: Access to additional repayments you've made above the minimum requirement, providing financial flexibility for future property purchases or renovations.
Offset Accounts: Link your savings to your investment loan to reduce interest charges on the outstanding loan amount.
Interest-Only Repayments: Popular among property investors utilising negative gearing strategies, allowing lower monthly repayments while maximising tax benefits.
Additional Repayments: Make extra payments when your financial situation permits, reducing the overall interest cost of your investment loan.
Research Property Markets and Loan Options
Before buying an investment property, thorough research into both the property market and available investment loan options is essential. Consider factors such as:
• Rental yield potential in your chosen location
• Capital growth prospects
• Stamp duty costs in your state
• Ongoing property management expenses
When you invest in real estate, accessing investment loan options from banks and lenders across Australia ensures you can compare interest rate discounts and loan features that align with your investment goals.
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The Investment Loan Application Process
The investment loan application involves providing comprehensive documentation to demonstrate your financial position. Most lenders require:
• Recent bank statements showing your savings pattern
• Income documentation including tax returns and payslips
• Details of existing debts and financial commitments
• Information about the property you intend to purchase
For your first investment property, lenders may apply more conservative lending criteria. As you develop your investment property portfolio, some lenders offer streamlined application processes for experienced property investors.
Calculating Investment Loan Repayments
Calculating investment loan repayments for variable rate loans requires considering that your investment loan interest rate may change over the loan term. Use loan calculators that account for:
• The current variable interest rate
• Your chosen repayment structure (principal and interest or interest-only)
• The loan term length
• Any offset account balances
Remember that rental income from your investment property can help service the loan repayments, though lenders typically only consider 75-80% of rental income when assessing your application.
Property Investment Loan Features to Consider
When comparing variable rate investment loans, evaluate these important property investment loan features:
Rate Structure: Some lenders offer tiered rates based on your LVR, with lower rates available for borrowers with larger deposits.
Professional Package Discounts: Many lenders provide interest rate discounts for borrowers who qualify for professional packages, potentially reducing your investment loan interest rate.
Portability: The ability to transfer your loan to a different property if you decide to sell and purchase another investment property.
Split Loan Options: Combine variable and fixed rate portions within the same loan facility, providing both flexibility and rate certainty.
Making Informed Investment Decisions
Buying a rental property represents a significant financial commitment that requires careful planning. Variable rate loans suit investors who want flexibility and the potential to benefit from falling interest rates. However, ensure your property investment strategy accounts for potential rate increases and their impact on your cash flow.
Consider seeking professional advice to understand how negative gearing, depreciation benefits, and other tax considerations interact with your chosen loan structure. This comprehensive approach helps ensure your investment property financing supports your long-term wealth creation goals.
Whether you're purchasing your first investment property or expanding an existing portfolio, understanding variable rate loan terms empowers you to make confident financing decisions. The right investment loan structure can significantly impact your property investment returns and overall financial position.
Call one of our team or book an appointment at a time that works for you to discuss your investment loan requirements and explore the options available from lenders across Australia.
