When you're buying an investment property, choosing the right loan structure can significantly impact your property investment strategy and overall returns. As a Department of Home Affairs employee, understanding the differences between fixed, variable, and split loan options will help you make informed decisions about your investment property portfolio.
Variable Interest Rate Investment Loans
Variable interest rate loans are the most common choice for investment property loans. With this option, your interest rate fluctuates based on market conditions and lender policy changes.
Key features of variable investment loans:
• Interest rates can decrease when the Reserve Bank lowers the cash rate
• You typically receive interest rate discounts based on your loan amount and borrowing capacity
• Most lenders offer offset accounts and redraw facilities
• Generally more flexible repayment options
• No break costs if you want to refinance or pay off the loan early
Variable rates work well when calculating investment loan repayments for negative gearing strategies, as the interest portion of your repayments may change throughout the year. This flexibility can be particularly valuable when managing multiple properties in your investment property portfolio.
Fixed Interest Rate Investment Loans
Fixed interest rate options lock in your Investment Loan Interest Rate for a predetermined period, typically between one to five years. This structure provides certainty in your rental property loan repayments.
Benefits of fixed investment loans:
• Predictable repayments make budgeting easier
• Protection against interest rate rises during the fixed period
• Clearer cash flow projections for rental yield calculations
• Suitable for investors who prefer certainty over flexibility
However, fixed rates come with limitations. You won't benefit if interest rates fall, and most fixed loan products don't include offset accounts. Additionally, breaking a fixed rate loan early often incurs significant costs.
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Book a chat with a Finance and Mortgage Brokers at Public Home Loans today.
Split Loan Investment Options
Split loans combine both fixed and variable portions within the same investment loan application. You might fix 60% of your loan amount while keeping 40% on a variable rate, or choose any split that suits your investment strategy.
Advantages of split investment loans:
• Hedge against interest rate movements in both directions
• Maintain some flexibility while securing partial rate protection
• Can attach offset accounts to the variable portion
• Allows you to test different loan structures
• Provides a balanced approach to property investment loan features
Split loans work particularly well for investors buying a rental property as their first investment property, as they provide exposure to both loan types without committing fully to either.
Factors to Consider When Choosing
When applying for an investment loan, several factors should influence your decision:
Property Type and Location
Whether you're purchasing a town house, apartment, or stand alone dwelling can affect your loan to value ratio (LVR) and available options. Different property types in various markets may perform differently, influencing your preferred loan structure.
Investment Strategy
Your overall property investment strategy plays a crucial role. If you're focused on capital growth and negative gearing, variable rates might suit your needs. For income-focused investors prioritising consistent cash flow, fixed rates could provide the stability you need.
Financial Position
Your borrowing capacity and current financial commitments affect which structure works for you. Consider your bank statements and regular income when evaluating repayment flexibility needs.
Market Conditions
The current property market and interest rate environment should influence your decision. When rates are historically low, fixing might protect against future rises. When rates are high, variable loans position you to benefit from potential decreases.
Additional Investment Loan Considerations
Regardless of which structure you choose, remember to factor in:
• Lenders mortgage insurance (LMI) if your LVR exceeds 80%
• Stamp duty costs for your investment property purchase
• The impact on your overall investment property portfolio
• How the loan structure affects your tax position
Research property options thoroughly and consider how your loan choice supports your long-term investment goals. The streamlined application process available through mortgage brokers can help you access investment loan options from banks and lenders across Australia, comparing features and rates to find the most suitable structure.
Making Your Decision
Choose variable rates if you value flexibility, want to benefit from potential rate decreases, and can handle payment fluctuations. Fixed rates suit investors who prioritise certainty and stable cash flow projections. Split loans offer a middle ground, providing both stability and flexibility.
When invest in real estate decisions become complex, professional guidance ensures you understand all available investment loan options. The application process involves detailed assessment of your financial position, investment goals, and risk tolerance.
Call one of our team or book an appointment at a time that works for you to discuss which investment loan structure aligns with your property investment strategy and financial objectives.
