Variable rate investment loans give you the ability to adjust your repayments and make changes to your loan without the restrictions that come with fixed terms.
Property investors in Mandurah and across Perth often choose variable rates because they offer features that support different stages of portfolio growth. When you're building wealth through property, having options to access equity, make extra repayments, or switch between interest only and principal and interest can make a real difference to your investment property finance strategy.
How Variable Interest Rates Respond to Market Conditions
Variable rates move up or down based on decisions from the Reserve Bank and individual lender pricing. When your lender adjusts their variable interest rate, your repayments change without you needing to refinance or renegotiate your loan.
Consider an investor who purchased a villa in Halls Head with a variable rate loan. When rates increased, their monthly repayments rose by around $340 on a loan amount of $450,000. They had the option to extend their loan term slightly to reduce the immediate impact on their cash flow, or they could maintain the original term and absorb the higher repayment. Because they were on a variable rate product, they could also increase repayments when rental income improved without penalty. This kind of adjustment isn't available on fixed rate products, where your repayment stays locked regardless of your circumstances.
For investors relying on rental income to service their loan, this flexibility matters when vacancy rates shift or body corporate fees increase unexpectedly. You can adapt your repayment strategy without triggering break costs.
Interest Only Versus Principal and Interest on Variable Terms
Most variable rate investment loan products let you choose between interest only repayments and principal and interest repayments, and you can usually switch between them during the loan term.
Interest only investment loans keep your repayments lower in the short term, which can improve your cash flow and help you qualify for additional borrowing if you're planning portfolio growth. You're only paying the interest charges each month, so the loan amount stays the same. After the interest only period ends, typically between one and five years, the loan reverts to principal and interest unless you request an extension.
Principal and interest repayments mean you're paying down the debt while also covering interest charges. Your loan balance reduces over time, which improves your loan to value ratio and builds equity in the property. For investors focused on negative gearing benefits and maximising tax deductions, interest only can be more appealing in the early years. For those wanting to reduce debt and build wealth over the long term, principal and interest offers a clearer path.
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Rate Discounts and How They Apply to Variable Products
Most lenders offer interest rate discounts off their standard variable rate when you take out an investment loan. The size of the discount usually depends on your loan amount, your deposit size, and whether you're borrowing for owner-occupied or investment purposes.
Investor interest rates typically sit higher than owner-occupier rates, but the discount structure works the same way. If a lender's standard variable rate for investors is 6.50% and they offer a 0.60% discount, your actual rate would be 5.90%. That discount stays in place for the life of the loan unless your lender changes their discount policy or you fall outside the criteria that qualified you for it.
Investors in areas like Lakelands and Golden Bay often have strong equity positions due to property value growth in these suburbs over recent years. If you're considering an investment loan refinance, the discount you're currently receiving might not match what's available now. Lenders adjust their pricing regularly, and a refinance can sometimes deliver a better ongoing rate, particularly if your loan to value ratio has improved since you first borrowed.
Offset Accounts and Redraw Facilities on Variable Investment Loans
Variable investment loan options often include either an offset account or a redraw facility, and understanding which one suits your situation makes a difference to how you manage surplus cash.
An offset account is a transaction account linked to your loan. The balance in the account reduces the amount of interest you're charged without actually paying down the loan balance. If you have a $500,000 loan and $30,000 in your offset account, you're only charged interest on $470,000. The loan amount itself stays at $500,000, which preserves your ability to claim interest as a deduction against rental income.
A redraw facility lets you make extra repayments on your loan and then withdraw them later if needed. The difference is that those extra repayments reduce your loan balance, which can affect the portion of interest you can claim as claimable expenses. If you pay down the loan and then redraw funds to use for personal purposes rather than investment purposes, you may lose the ability to claim that portion of the interest.
In our experience, investors who want to park surplus rental income while keeping their full interest deduction intact tend to favour offset accounts. Those who want to reduce their debt but maintain access to funds in case of unexpected property expenses may prefer redraw.
Accessing Equity on Variable Rate Loans
Variable rate products generally allow you to leverage equity in your property without needing to refinance the entire loan. If your property in Mandurah has increased in value and your loan to value ratio has improved, you can apply to access that equity for a range of purposes, including purchasing another investment property.
Lenders will reassess your borrowing capacity and the current value of your property. If your equity release pushes your LVR above 80%, you'll likely need to pay Lenders Mortgage Insurance on the additional borrowing. Stamp duty and other upfront costs for a new purchase also need to be factored into your strategy.
As an example, an investor who purchased a unit in Erskine several years ago may have seen the property value rise while their loan balance decreased. If the property was initially worth $380,000 with a loan of $320,000, and it's now valued at $480,000 with a loan balance of $290,000, they have approximately $190,000 in equity. Accessing a portion of that equity while keeping the LVR at or below 80% would give them around $94,000 to put toward an investor deposit on a second property. On a variable loan, this kind of equity access doesn't require you to break a fixed term or pay exit fees.
This approach supports portfolio growth and helps generate passive income from multiple properties, but it does increase your overall loan amount and your repayment obligations.
What Happens When You Want to Sell or Refinance
Variable rate loans don't impose break costs when you exit the loan or refinance to another lender. You can sell the investment property, pay out the loan, and move on without financial penalty beyond standard discharge fees.
If you're refinancing to access better investor interest rates or to consolidate debt, the process is more straightforward on a variable product. You're not locked into a term, and you don't need to calculate whether breaking the loan early will cost you more than you'll save with the new rate. For investors managing multiple properties or planning to adjust their property investment strategy as market conditions change, this kind of flexibility reduces friction.
If you've recently reviewed your loan and you're unsure whether your current rate still reflects what's available in the market, a loan health check can show you where you stand compared to current investment loan products.
Variable rate investment loans give you control over how you manage repayments, access equity, and respond to changes in your financial situation. They suit investors who want the ability to adapt without being locked into a fixed structure, and they work particularly well if you're planning to grow your portfolio over time or if your income and expenses fluctuate.
Call one of our team or book an appointment at a time that works for you to discuss which variable rate investment loan features suit your property investment strategy.
Frequently Asked Questions
What is the main difference between variable and fixed rate investment loans?
Variable rates change when lenders adjust their pricing, which means your repayments can go up or down. Fixed rates lock in your repayment for a set period, usually between one and five years, but you lose the ability to make extra repayments or access certain features without penalty.
Can I switch from interest only to principal and interest on a variable investment loan?
Yes, most variable rate investment loan products allow you to switch between interest only and principal and interest repayments during the loan term. You'll need to contact your lender or broker to request the change, and it typically doesn't involve fees or penalties.
How does an offset account help with an investment loan?
An offset account reduces the interest you're charged without paying down the loan balance, which preserves your ability to claim the full interest amount as a tax deduction. The balance in the offset account is subtracted from your loan balance when interest is calculated.
Do I need to refinance to access equity in my investment property?
Not always. On a variable rate loan, you can often apply to access equity without refinancing the entire loan. Your lender will reassess your property value and borrowing capacity, and you may need to pay Lenders Mortgage Insurance if your loan to value ratio exceeds 80%.
Are there exit fees when I sell a property with a variable rate investment loan?
Variable rate loans don't typically charge break costs when you exit the loan or refinance. You'll usually only pay standard discharge fees, which are much lower than the break costs associated with fixed rate loans.
