The Pros and Cons of Variable Rate Investment Loans

Variable Rate Investment Loans: What You're Actually Getting

A variable rate on an investment loan means your interest rate moves with the market, usually tracking the Reserve Bank's cash rate changes. When rates drop, your repayments drop. When they climb, so do your repayments. Unlike a fixed rate, you're not locked in, which means you can pay extra, redraw, or refinance without penalty in most cases.

For concreters picking up rental properties while running a business, that flexibility matters. Income from concreting work can swing between quiet months and flat-out periods. A variable loan lets you park extra cash into the offset or redraw when you've got it, then pull it back out when work slows down or a vehicle needs replacing.

The trade-off is uncertainty. Your repayments can shift every month or two, and if rates climb faster than your rental income, the gap widens. That's fine if you've got a buffer, but it can pinch hard if you're already tight on cashflow.

The Offset Account: Where Flexibility Actually Pays Off

Most variable rate investment loans come with an offset account linked to the loan. Every dollar sitting in that offset reduces the interest you're charged on the loan balance, without actually paying down the principal. You keep access to the cash, and the interest saving is immediate.

Consider a concreter who holds a rental property with a loan balance of $450,000 at a variable rate. During peak season, $30,000 from completed jobs sits in the offset account. That $30,000 reduces the loan balance you're paying interest on down to $420,000 for as long as the money stays there. When materials suppliers need paying or wages are due, you pull it straight back out. No penalties, no waiting, no paperwork.

That setup works because concreting income isn't steady. One month you're invoicing $60,000, the next you're covering costs while rain delays two jobs. The offset gives you somewhere to hold cash that's actually working for you while you wait for the next payout. It's not a savings account earning 2 per cent. It's a tool that cuts your loan interest by whatever your investment loan rate happens to be at the time, which is usually a lot more than any bank will pay you to park cash elsewhere.

Redraw Versus Offset: Which One You'll Actually Use

Redraw and offset both let you access extra money, but they work differently and one usually fits a tradie's cashflow better than the other. Redraw is when you pay extra off the loan, then apply to pull that money back later. Offset is a separate account where your money sits without touching the loan balance, but still reduces the interest charged.

Redraw can be clunky. Some lenders cap how many times you can redraw each year, or charge a fee every time you do it. Others take a few days to process the request. If you need $10,000 for a bobcat repair on a Thursday, that delay can cost you a job. Offset is instant. The cash is in your account, and you move it in or out whenever you need to, as many times as you like.

For concreters running a business and holding rental property at the same time, offset wins. Your income is uneven, and you're moving cash around constantly to cover suppliers, wages, equipment hire, and your own bills. An offset account built into your investment loan gives you full control without waiting on the lender to approve every withdrawal.

Interest-Only Repayments: When They Actually Make Sense

Interest-only repayments mean you're only covering the interest charged each month, not paying down the loan balance. The monthly cost is lower, but the debt stays the same. For investors, that setup can make sense when the property is negatively geared and you want to maximise your tax deduction while keeping cashflow tight.

Under current tax rules, the interest you pay on a loan used to buy or hold a rental property is fully deductible against your income from all sources, as long as you bought the property before 12 May 2026 or it's a new build. Paying down the principal reduces your deductible interest over time, which means your tax refund shrinks. If you're holding the property for capital growth and the rent barely covers the loan anyway, interest-only lets you claim the full deduction while freeing up cash to cover other expenses or invest elsewhere.

The catch is that interest-only periods usually run for one to five years, then the loan flips to principal and interest. Your repayments jump, sometimes by 30 to 40 per cent depending on rates and how long you've been interest-only. If you're not ready for that jump, it can squeeze your cashflow hard. It's also worth noting that established properties bought after 12 May 2026 are subject to new negative gearing rules from the 2027-28 income year, meaning losses can only be offset against other residential property income, not wages.

Rate Discounts and How to Keep Them

Variable rate investment loans are priced as a margin above the lender's standard variable rate, and most lenders offer a discount off that standard rate when you first take out the loan. A typical discount might be 0.60 to 1.00 percentage points, depending on your loan size, deposit, and the lender's appetite for investment lending at the time.

The problem is that discounts erode. Lenders increase their standard variable rate over time, sometimes in line with Reserve Bank movements and sometimes independently. Your discount stays the same in percentage terms, but if the standard rate climbs, so does your actual rate. After a few years, borrowers who took out loans with a decent discount often find they're paying more than new customers are being offered on the same product.

That's where refinancing or a loan health check comes in. If your rate has drifted up and you've built some equity in the property, you can refinance to a new lender and pick up a fresh discount. The process usually takes four to six weeks, and you'll need to show rental income, your most recent tax return, and proof the property is tenanted or available for rent. The equity you've built, either through capital growth or paying down the loan, often means your loan-to-value ratio has improved since you first borrowed, which can get you into a better rate bracket.

The Debt-to-Income Limit and What It Means for Your Next Purchase

From February 2026, banks can only lend up to 20 per cent of their total new investor loans to borrowers whose total debt is six times their annual income or more. That limit applies separately to investment lending and owner-occupier lending, and it's measured across all your borrowing, not just the new loan.

For a concreter earning $120,000 a year after deductions, six times income is $720,000. If you've already got an owner-occupier loan of $400,000 and you're applying for a $350,000 investment loan, your total debt is $750,000. You're over the six-times threshold, so you'll be competing for a spot in that 20 per cent allocation.

That doesn't mean you can't borrow. It means the bank's credit team will be stricter on every other part of your application. Your rental income needs to be solid, your tax returns need to show consistent earnings, and your living expenses can't be inflated. If the bank has already allocated most of its 20 per cent for the quarter, you might need to wait or try a different lender. This is where a broker familiar with finance for tradies can move your application to a lender with capacity still available.

Rental Income: How Lenders Actually Count It

Lenders don't take your rental income at face value. Most will shade it by 20 per cent to account for vacancies, maintenance, and periods between tenants. If the property rents for $500 a week, the lender will only count $400 a week in your serviceability assessment. That shading can make a difference when you're trying to borrow for a second or third property.

Some lenders will accept the full rental amount if you can show a lease agreement in place and evidence of consistent rental payments, but that's not standard. The 20 per cent shading is a serviceability buffer, not a reflection of your actual tenancy. Even if your property has been rented continuously for three years, the lender will still apply the reduction when calculating how much you can afford to borrow.

If you're planning to expand your portfolio and pick up another rental, make sure your current properties are pulling in strong rent relative to their loan size. Lenders assess your ability to service all your loans, including the new one, at a rate that's 3.0 percentage points above the actual loan rate. A property that's only just covering its interest repayments at current rates will look underwater once the buffer is applied, and that will drag down your borrowing capacity for the next purchase.

Refinancing Your Investment Loan: When and Why

Refinancing an investment loan makes sense when your current rate has drifted above what you could get elsewhere, or when you want to pull equity out of the property to fund another investment or business expense. Most variable rate loans let you refinance without penalty, though you'll still have to cover discharge fees from your old lender and application fees with the new one. Those costs usually run between $800 and $1,500 in total.

If you've held the property for a few years and its value has increased, your loan-to-value ratio has likely improved. That can move you into a better rate tier, even if you're borrowing the same amount. For example, a loan that started at 85 per cent LVR might now sit at 70 per cent if the property has increased in value and you've been making repayments. That lower LVR can unlock a rate that's 0.20 to 0.40 percentage points cheaper than what you're currently paying.

You can also refinance to access equity. If the property is now worth more than when you bought it, the difference between the current value and your loan balance is equity you can borrow against. That borrowed equity can be used to fund a deposit on another property, buy work vehicles, or cover business expenses. The interest on that portion of the loan is only deductible if the borrowed funds are used to produce assessable income, so speak to an accountant before pulling equity for personal use. You can read more on refinancing rental properties in our guide to investment loan refinancing.

Lenders Mortgage Insurance on Investment Loans

If you're borrowing more than 80 per cent of the property's value, the lender will usually require you to pay for Lenders Mortgage Insurance. LMI protects the lender if you default and the property sells for less than you owe. It doesn't protect you, but you're the one paying for it. The premium is calculated based on your loan size and LVR, and it can run anywhere from a few thousand dollars up to $20,000 or more on a high-LVR investment loan.

Some lenders will let you capitalise the LMI premium into the loan, which means you don't pay it upfront but you're borrowing more and paying interest on it for the life of the loan. If you've got the cash sitting in your offset, it's usually smarter to pay the LMI upfront and keep your loan balance lower, but that depends on your cashflow at the time.

LMI isn't always avoidable, but it's worth knowing that some lenders offer LMI waivers for tradies in certain occupations or for borrowers with strong financials. If you're a concreter with a solid income history, clean credit, and a decent deposit, ask whether a waiver is on the table. It's not advertised, but it's negotiable in some cases.

Call one of our team or book an appointment at a time that works for you. We'll look at your current setup, your income structure, and what you're planning next, then work out which lenders and loan features actually fit.

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