When to Choose Variable Rate Investment Loans

If you're considering buying an investment property in NSW, understanding your investment loan options is crucial for your property investment strategy. Variable rate investment loans offer flexibility and features that can work well for many property investors, but they also come with specific fees and costs you need to know about.

Let's dive into what makes variable rate loans tick and whether they're the right fit for your portfolio growth goals.

What Makes Variable Rate Investment Loans Different?

A variable interest rate means your interest rate can move up or down based on market conditions and lender decisions. Unlike fixed rate loans where your rate stays locked for a set period, variable rates give you the freedom to take advantage of rate drops while also exposing you to potential increases.

The key investment loan features that come with variable rates include:

• The ability to make extra repayments without penalty
• Access to redraw facilities to access funds you've paid ahead
• Options to split your loan amount between variable and fixed portions
• Offset account availability to reduce interest charges
• The flexibility to refinance without break costs

These investment loan benefits can be particularly valuable when you're building wealth through property and need to adapt your strategy as circumstances change.

Understanding the Costs of Variable Rate Investment Loans

When comparing investment property finance options, you'll encounter several fees and costs. Being aware of these from the start helps you calculate investment loan repayments accurately and avoid surprises.

Application and Establishment Fees

Most lenders charge an application fee for processing your investment loan application. This typically ranges from $300 to $1,000, though some lenders across Australia have reduced or removed these fees entirely. There may also be establishment or settlement fees of $200 to $600.

Ongoing Account Fees

Many variable rate investment loan products include monthly or annual account keeping fees, usually between $10 and $20 per month. While this might seem modest, these claimable expenses add up over the life of your loan.

Lenders Mortgage Insurance (LMI)

If your loan to value ratio (LVR) exceeds 80%, you'll likely need to pay Lenders Mortgage Insurance. This one-off cost protects the lender and can range from a few thousand dollars to tens of thousands, depending on your investor deposit and loan amount. The good news? LMI premiums are tax-deductible for investment properties, helping maximise tax deductions.

Valuation and Legal Fees

Lenders require property valuations, costing between $200 and $600. You'll also need legal and conveyancing services, which vary based on the property's location and complexity. Don't forget stamp duty costs, which in NSW can be substantial depending on the purchase price.

Rate Discounts and Package Fees

Many lenders offer interest rate discounts if you bundle your investment property loan with other products like transaction accounts or credit cards. Some charge annual package fees of $300 to $400 for these benefits. Consider whether the interest rate discounts outweigh the package costs for your situation.

Interest Only vs Principal and Interest

Variable rate investment loans commonly offer interest only options, where you only pay the interest for a set period (typically 1-5 years). This approach can:

• Lower your immediate repayments
• Improve cash flow from rental income
• Potentially enhance negative gearing benefits
• Help you redirect funds toward other investments

However, interest only investment loans mean you're not reducing the principal loan amount during the interest-only period. When this period ends, repayments increase as you start paying both principal and interest.

Alternatively, principal and interest repayments from the start help build equity faster and reduce your overall interest costs over time.

How Variable Rates Impact Your Investment Strategy

Your property investment strategy should consider how variable rates align with your goals. Variable investor interest rates currently provide opportunities for those who:

• Want flexibility to make extra repayments when rental income exceeds expenses
• Plan to leverage equity for additional property purchases
• Need access to funds through redraw facilities
• Expect interest rates to decline or remain stable
• Value the ability to refinance or restructure without penalties

For building wealth through property, the adaptability of variable rates can support portfolio growth as you acquire multiple properties and need rental income to work harder for you.

Tax Considerations for NSW Property Investors

Understanding the tax benefits of investment property rates helps optimise your returns. With variable rate loans, most costs are claimable expenses, including:

• Interest charges on your rental property loan
• Loan establishment and ongoing fees
• LMI premiums (spread over five years)
• Costs associated with investment loan refinance

These deductions reduce your taxable income, potentially offsetting some of the holding costs. Combined with negative gearing benefits and passive income from tenants, property investment can create pathways toward financial freedom.

Accessing Investment Loan Options Across Australia

At Personalised Finance, we help you access investment loan options from banks and lenders across Australia. Different lenders offer varying investment property rates, loan features, and fee structures. What works for one property investor loan might not suit another, depending on factors like:

• Your borrowing capacity
• The investor borrowing amount you need
• Your existing property portfolio
• Whether you're purchasing or looking to refinance
• Body corporate fees (for units or townhouses)
• Expected vacancy rate in the area

Comparing multiple investment loan products ensures you're getting features that align with your strategy while minimising unnecessary costs.

Making Your Decision

Choosing between variable rate and fixed rate loans depends on your risk tolerance, cash flow needs, and market outlook. Variable rates suit investors who value flexibility and want to capitalise on potential rate decreases. They're particularly relevant if you're planning to:

• Make irregular extra repayments from bonus rental income
• Equity release for future property purchases
• Keep options open for refinancing as your circumstances evolve
• Build wealth through a dynamic, responsive approach

Remember, you're not locked into one choice forever. Many investors use a combination of variable and fixed rates across different properties or split their loan amount between both rate types.

Understanding the fees and costs of variable rate investment loans empowers you to make informed decisions about your property investment journey. Whether you're buying an investment property for the first time or expanding an established portfolio, knowing what you'll pay upfront and ongoing helps you plan effectively.

Call one of our team or book an appointment at a time that works for you to discuss how variable rate investment loans can support your property investment goals. We'll help you compare options, understand the true costs, and structure finance that aligns with your vision for financial freedom.