When you're considering buying an investment property, choosing between variable and fixed interest rates is one of the most important decisions you'll make. As a Department of Home Affairs employee, understanding the features of variable rate investment loans can help you make an informed choice that aligns with your property investment strategy.
What Are Variable Rate Investment Loans?
A variable interest rate investment loan is a rental property loan where the interest rate can change over time based on market conditions and lender policies. Unlike fixed interest rates that remain constant for a set period, variable rates fluctuate, which means your loan repayments can go up or down.
For public service employees looking to invest in real estate, variable rate loans offer several distinct features that can work in your favour when building your investment property portfolio.
Key Features of Variable Rate Investment Loans
Flexibility in Repayments
Variable rate loans typically offer more flexibility than their fixed counterparts. You can often:
• Make additional repayments without penalty
• Access redraw facilities to withdraw extra payments
• Switch between interest-only and principal-and-interest repayments
• Take advantage of offset accounts to reduce interest charges
Interest Rate Discounts
Many lenders offer interest rate discounts on variable investment loans, particularly for borrowers with strong borrowing capacity. These discounts can significantly impact your rental yield calculations and overall property investment returns.
Access to Multiple Property Types
Whether you're purchasing a town house, apartment, or stand alone dwelling, variable rate investment loans typically provide financing options across different property types. This flexibility allows you to research property opportunities that match your investment goals.
Ready to get started?
Book a chat with a Finance and Mortgage Brokers at Public Home Loans today.
How Variable Rates Affect Your Investment Strategy
Calculating Investment Loan Repayments
With variable rates, calculating investment loan repayments requires ongoing attention. Your monthly payments will change when rates move, affecting your cash flow and negative gearing benefits. This variability means you need to budget for potential rate increases while also being able to benefit from rate decreases.
Impact on Loan to Value Ratio (LVR)
Your LVR affects not only your loan amount but also whether you'll need to pay lenders mortgage insurance (LMI). Variable rate loans often provide more options for managing your LVR over time through additional repayments or using equity from your existing investment property portfolio.
The Application Process for Variable Rate Investment Loans
Applying for an investment loan with a variable rate follows a structured process. You'll need to provide bank statements, demonstrate your borrowing capacity, and show evidence of your ability to service the loan even if rates increase.
At Public Home Loans, we can access investment loan options from banks and lenders across Australia, helping you find suitable terms for your first investment property or additions to your existing portfolio. The investment loan application process involves:
- Assessing your financial position and borrowing capacity
- Researching suitable lenders and loan products
- Preparing your investment loan application
- Managing the streamlined application process through to settlement
Managing Variable Rate Risks
While variable rates offer flexibility, they also come with risks. Interest rate increases can affect your cash flow and the viability of your property investment strategy. Consider these factors:
• Budget for potential rate rises in your financial planning
• Monitor the property market and your rental yield regularly
• Consider the impact on negative gearing benefits
• Keep some financial buffer for increased repayments
Additional Costs to Consider
Beyond the loan amount and interest rate, remember to factor in other costs like stamp duty, which varies by state and can significantly impact your initial investment. These costs should be included when determining your overall borrowing requirements.
Why Choose Variable Over Fixed?
Variable rate investment loans might suit you if:
• You want maximum flexibility in loan management
• You're comfortable with some uncertainty in repayments
• You want to take advantage of potential rate decreases
• You value access to features like offset accounts and redraw facilities
As mortgage specialists for public service employees, we understand the unique financial circumstances of Department of Home Affairs staff. Our team can help you evaluate whether a variable rate investment loan aligns with your property investment goals and risk tolerance.
Building a successful investment property portfolio requires careful planning and the right financing structure. Variable rate loans offer features that can enhance your investment strategy when used appropriately.
Call one of our team or book an appointment at a time that works for you to discuss your investment loan options and find the right solution for your property investment journey.
