What to Know About Variable Rate Investment Loans

Understanding Variable Rate Investment Loans

When it comes to buying an investment property, selecting the right investment loan options can significantly impact your property investment strategy and long-term financial outcomes. For property investors in Doncaster, variable rate investment loans offer flexibility and potential advantages that align with diverse investment goals.

A variable interest rate investment loan is a type of property investment loan where the interest rate fluctuates according to market conditions and the lender's decisions. Unlike a fixed interest rate product, variable rates can move up or down throughout the life of your loan, affecting your investment loan repayments and overall investment property finance costs.

Key Investment Loan Features of Variable Rate Products

Variable rate investment loan products come with several features that can benefit property investors:

• Offset accounts: Link a transaction account to your investment loan to reduce the interest charged on your loan amount
• Redraw facilities: Access additional repayments you've made when you need them
• Additional repayments: Pay more than the minimum without penalty, reducing your loan faster
• Interest rate discounts: Negotiate rate discount opportunities based on your borrowing position
• Loan portability: Transfer your investment property loan to a different property without refinancing

These investment loan features provide flexibility that fixed rate options typically don't offer, making variable rates attractive for many property investors.

Interest Only vs Principal and Interest Options

When structuring your investment loan, you'll need to decide between interest only and principal and interest repayments.

Interest only investment loans allow you to pay only the interest component for a set period (typically 1-5 years). This option:

• Reduces your monthly repayments
• Maximises tax deductions on investment properties
• Frees up cash flow for portfolio growth or other investments
• Helps manage your borrowing capacity for additional properties

Principal and interest loans require you to pay both the interest and loan amount reduction from the start. This approach:

• Builds equity faster in your rental property loan
• Reduces your overall interest costs
• May offer lower investor interest rates from some lenders

Investment Loan Benefits and Tax Advantages

Property investment comes with several tax benefits that can enhance your returns. Understanding these advantages is crucial for calculating investment loan repayments and overall profitability:

1. Negative gearing benefits: When your rental income is less than your loan repayments and claimable expenses, you can offset this loss against your taxable income
2. Maximise tax deductions: Interest repayments, property management fees, maintenance costs, and body corporate fees are all claimable expenses
3. Depreciation: Building and fixtures depreciate over time, providing additional tax benefits
4. Stamp duty: In some cases, stamp duty paid on investment properties can be claimed

These factors contribute to building wealth property strategies that many Doncaster investors use to achieve financial freedom.

Understanding Loan to Value Ratio and Investor Deposit Requirements

The loan to value ratio (LVR) is the percentage of the property value you're borrowing. Most lenders require an investor deposit of at least 20% to avoid Lenders Mortgage Insurance (LMI). However, investment loan options exist for higher LVR loans:

• 80% LVR or less: No LMI required, more favourable investor interest rates
• Above 80% LVR: LMI applies, which can be capitalised into the loan amount
• Equity release: Leverage equity from existing properties to fund your investor deposit

Accessing equity from your home or other investment properties can accelerate portfolio growth without requiring cash savings for each purchase.

Calculating Investment Loan Repayments and Rental Income

When assessing investment property rates and calculating investment loan repayments, you need to consider:

• Rental income: The passive income your property generates
• Vacancy rate: Factor in potential periods without tenants (typically 2-4 weeks annually)
• Investment property finance costs: Interest repayments, fees, and charges
• Ongoing expenses: Council rates, insurance, maintenance, and property management

Lenders typically assess your investor borrowing capacity using 80% of potential rental income, accounting for vacancy periods and collection risks. Understanding how lenders calculate your borrowing capacity helps you identify suitable investment loan products for your circumstances.

Investment Loan Refinance Opportunities

An investment loan refinance can provide several advantages:

• Access better investment property rates as the market changes
• Release equity from properties that have increased in value
• Consolidate multiple investment loans
• Switch from interest only to principal and interest (or vice versa)
• Access additional features not available with your current lender

Regular reviews of your investment property finance arrangements ensure you're accessing competitive investor interest rates and suitable loan structures as your property investment strategy evolves.

Access Investment Loan Options from Banks and Lenders Across Australia

Working with an experienced mortgage broker allows you to access investment loan options from banks and lenders across Australia. Different lenders offer varying:

• Investment property rates
• Maximum LVR ratios
• Interest rate discounts
• Investment loan features
• Serviceability criteria

At OVM Finance Group, we help Doncaster property investors compare investment loan products and structure their investment loan application for optimal outcomes. Whether you're purchasing your first rental property loan or expanding an existing portfolio, we provide tailored advice on investment loan options that align with your goals.

Our team understands the local Doncaster property market and can guide you through the investment loan application process, from assessing your borrowing capacity to settlement. We work with you to build wealth through property investment while managing risk and maximising returns.

Call one of our team or book an appointment at a time that works for you to discuss your property investment loan needs and explore the investment loan benefits available through variable rate products.