Simple hacks to cut costs on variable rate investment loans

Variable rate investment loans give you the option to make extra repayments without penalty, but most tradies don't realise you can use this to pay down the loan faster while keeping your tax deductions intact.

The decision you're facing is whether to lock into a fixed rate or stick with a variable loan, and whether making extra payments actually makes sense when you're claiming the interest as a tax deduction. The single most useful thing to know is this: on a variable rate investment loan, every extra dollar you pay now reduces the interest you'll pay over the life of the loan, and you can pull that money back out later if you need it through a redraw facility.

Variable rate loans vs fixed rate for investment property

A variable rate investment loan adjusts with market movements, which means your repayments can go up or down depending on what the Reserve Bank does. A fixed rate locks in your rate for a set period, usually one to five years, so your repayments stay the same regardless of rate changes.

The key difference for investors is flexibility. Variable loans let you make unlimited extra repayments and redraw them when needed. Fixed loans often cap extra repayments at around $10,000 to $30,000 per year, and you can't redraw those funds. If you're a carpenter with irregular cash flow from big jobs or contract work, being able to throw extra money at the loan during good months and pull it back out if work dries up is worth more than rate certainty. You can read more about investment loans for tradies to see how different loan structures work.

How extra repayments reduce interest without losing tax benefits

When you make extra repayments on your investment loan, you're reducing the principal, which means less interest is charged each month. The interest you do pay is still fully deductible, so you're not losing any tax benefit by paying the loan down faster.

Consider a carpenter who borrows for an investment property and pays an extra $500 per month when work is solid. Over the first five years, those extra repayments reduce the loan balance, which cuts the total interest paid over the loan term by thousands of dollars. The interest that remains is still claimable as a deduction, so the tax treatment doesn't change. The outcome is a lower loan balance, less interest paid over time, and the ability to redraw those extra funds if a van needs replacing or a job falls through.

This approach works particularly well under the new negative gearing rules. If you bought an established investment property after Budget night in May, your deductions from 1 July 2027 will only offset rental income or capital gains from residential property, not your carpentry income. Paying down the loan faster means less interest to claim, but it also means building equity quicker, which matters more when you can't use the loss to reduce your overall tax bill.

Using an offset account instead of extra repayments

An offset account is a transaction account linked to your investment loan. Every dollar in the offset reduces the balance on which interest is calculated, exactly like making an extra repayment, but the money stays accessible without needing to redraw.

If you're holding cash from a big carpentry job or building up a buffer for quiet months, parking it in an offset account reduces your loan interest while keeping the funds liquid. The interest saving is identical to making an extra repayment, but you don't need to apply for a redraw or wait for approval to access your own money. Not all investment loans come with an offset account, and some lenders charge a higher rate for loans that include one, so you need to check whether the interest saving outweighs the rate difference.

Redraw facilities and how they work for tradies

A redraw facility lets you access any extra repayments you've made above the minimum required amount. Most variable rate investment loans include redraw at no extra cost, though some lenders charge a small fee per transaction.

If you've paid an extra $10,000 into your investment loan over the past year and need cash to cover materials for a job or replace tools, you can redraw that amount. The loan balance goes back up, and so does the interest you're charged, but you haven't had to apply for a separate loan or use a credit card. For tradies with lumpy income, this turns your investment loan into a working capital facility without losing the tax deductibility of the interest.

One thing to watch: if you redraw funds and use them for something other than the investment property, such as buying a work vehicle or paying for a family holiday, that portion of the loan interest is no longer deductible. Keep the purposes separate, and if you need to borrow for non-investment purposes, look at something like equity release loans for tradies instead.

Split loans and how they fit with variable rates

A split loan divides your borrowing into two portions, typically one fixed and one variable. You get rate certainty on part of the loan and flexibility on the rest.

If you're borrowing for an investment property and want to lock in a portion of your repayments to make budgeting easier, you might fix 50% of the loan and leave the other 50% on a variable rate with redraw and offset. The variable portion gives you the flexibility to make extra repayments and access funds when needed, while the fixed portion protects you from rate rises on half your debt. This setup works well if you're carrying other debt, such as a work vehicle loan, and want to manage cash flow across multiple commitments. Debt consolidation loans for tradies can also help if you're juggling several repayments.

Interest only vs principal and interest with extra repayments

An interest only loan requires you to pay only the interest each month, not the principal. This keeps your repayments lower, which can help with cash flow, especially in the early years of ownership when rental income might not cover all your costs.

If you're on an interest only loan, you can still make extra repayments to reduce the principal, and those funds are usually available through redraw. The benefit is that your minimum repayment stays low, so if cash flow tightens, you're only required to pay the interest. Any extra payments you make reduce the loan balance and the interest charged, but you're not locked into higher repayments like you would be on a principal and interest loan.

Principal and interest loans require you to pay down the loan balance every month. Repayments are higher, but you're building equity from day one. If you're earning solid money as a carpenter and want to own the property outright sooner, principal and interest with extra repayments will get you there faster. The choice depends on whether you value flexibility or forced savings.

What to look for in a variable rate investment loan

Not all variable rate loans are set up the same way. Some come with offset accounts, some don't. Some charge redraw fees, others don't. Some let you link multiple offset accounts, which is useful if you've got a partner or want to separate business and personal cash.

The rate itself matters, but the features matter more if you're planning to make extra repayments or hold cash in offset. A loan that's 0.10% cheaper but charges $20 per redraw and doesn't include an offset might cost you more over time than a slightly higher rate with full flexibility. If you're considering refinancing an existing investment loan to access better features, investment loan refinancing for tradies covers what to look for and when it makes sense to switch.

You also want to check the loan to value ratio the lender will accept and whether they'll let you borrow more later using the equity you've built. If your plan is to use the first investment property as a deposit for a second, you need a lender who'll allow that without forcing you to refinance. Expanding your property portfolio goes into more detail on how to structure loans for multiple properties.

Calculating whether extra repayments are worth it

The interest you save by making extra repayments depends on your loan balance, your interest rate, and how much extra you can afford to pay. A carpenter earning strong money on commercial builds might be able to put an extra $1,000 per month into the loan during busy periods, while someone working residential maintenance might only manage $200 to $300.

Over time, even small extra payments add up. The key is consistency. If you're making irregular lump sum payments, that still helps, but regular extra repayments compound faster because you're reducing the principal every month, not just once or twice a year. Most lenders have online calculators that show how extra repayments affect your loan term and total interest paid, but those tools don't account for your ability to redraw or use offset, which is where the real flexibility comes in for tradies.

Call one of our team or book an appointment at a time that works for you. We'll look at your income, your cash flow, and the type of investment property you're buying or already own, and work out whether a variable rate loan with offset and redraw actually suits the way you work, or whether a different structure makes more sense.

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