The Pros and Cons of Variable Rate Investment Loans

When you're thinking about buying an investment property in Eltham or surrounding areas, choosing between a variable interest rate and fixed interest rate can feel overwhelming. Variable rate loans offer flexibility, but they come with their own set of advantages and challenges depending on where you are in life.

Understanding Variable Rate Investment Loans

A variable interest rate means your loan repayments can change based on market conditions and your lender's decisions. Unlike fixed rates, variable rates can move up or down throughout your loan term. This affects your rental property loan repayments and overall investment loan strategy.

When calculating investment loan repayments, you need to factor in potential rate changes. The interest rate directly impacts your borrowing capacity and the viability of your property investment strategy, especially when considering negative gearing benefits.

Variable Rates in Your 20s and Early 30s

If you're buying your first investment property, variable rates can work in your favour. At this stage of life, you typically have:

• More time to ride out interest rate cycles
• Flexibility to make extra repayments when rates are low
• Ability to take advantage of interest rate discounts
• Room to build your investment property portfolio gradually

Young investors often choose apartments or town houses as their first investment due to lower entry costs. Variable rates allow you to benefit when rates drop, potentially improving your rental yield over time.

Mid-Life Investment Strategies (35-50)

During your peak earning years, variable rate loans offer different advantages. You might be looking at stand alone dwellings or expanding your existing investment property portfolio. At this stage:

• Your borrowing capacity is typically at its highest
• You can handle rate fluctuations more comfortably
• Property investment loan features become more important
• You're researching property markets more strategically

Many investors in this age group have established relationships with lenders, potentially accessing better loan to value ratio (LVR) terms and avoiding lenders mortgage insurance (LMI) on some purchases.

Pre-Retirement Considerations (50+)

As you approach retirement, variable rates require more careful consideration. Your investment loan application process might focus on:

• Stability of rental income
• Reduced borrowing capacity due to approaching retirement
• Need for predictable cash flow
• Potential benefits of refinancing existing loans

At this stage, you might prefer the certainty of knowing your exact repayments, making fixed rates more appealing. However, if you expect rates to fall, variable rates could still work in your favour.

The Application Process for Variable Rate Investment Loans

Applying for an investment loan involves several steps regardless of your age:

1. Research property markets and investment opportunities
2. Assess your borrowing capacity using tools like our borrowing capacity calculator
3. Gather required documents including bank statements and income proof
4. Submit your investment loan application
5. Await approval and settlement

The streamlined application process varies between lenders, but having access to investment loan options from banks and lenders across Australia gives you more choice.

Key Considerations for All Ages

Loan Amount and LVR: Variable rates often come with competitive loan amounts and flexible LVR requirements. Consider stamp duty costs when determining your total loan amount using our stamp duty calculator.

Property Type: Whether you're buying a rental property that's an apartment, town house, or stand alone dwelling affects your loan terms and potential rental yield.

Investment Loan Interest Rate: Variable rates can start lower than fixed rates, but remember they can increase. Monitor the property market and interest rate trends regularly.

Making the Right Choice

Variable rate investment loans work well when you:

• Want flexibility to make extra repayments
• Expect interest rates to fall or remain stable
• Can handle payment fluctuations
• Want access to loan features like offset accounts

They might not suit you if you need payment certainty or are approaching retirement with limited income flexibility.

For Eltham residents looking to invest in real estate, understanding these life stage considerations helps you make informed decisions. Whether you're buying your first rental property or expanding your portfolio, the right loan structure depends on your personal circumstances, risk tolerance, and investment goals.

Considering your investment loan options carefully at each life stage helps ensure your property investment strategy aligns with your financial objectives. Remember to factor in all costs, from stamp duty to ongoing management expenses, when planning your investment.

Call one of our team or book an appointment at a time that works for you to discuss your investment loan needs.