Variable Rate Investment Loans: What You Need to Know

Variable rate investment loans give you access to features that fixed loans lock you out of.

If you're a plumber looking to buy an investment property, understanding these features matters because they determine how much control you have over your loan once you've signed on the dotted line. The key is knowing which features actually save you money and which ones just sound good in the brochure.

Offset Accounts: Real Money Back in Your Pocket

An offset account reduces the interest you pay by offsetting your loan balance with the cash sitting in a linked transaction account. Every dollar in the offset is a dollar you're not paying interest on.

Consider a plumber who's bought a two-bedroom unit in Blacktown as a rental. With a $450,000 loan and $15,000 sitting in the offset account from job payments, they're only paying interest on $435,000. At current variable rates, that's putting real money back into their pocket each month without them having to do anything more than banking their income in the offset instead of a regular account. The rental income can also flow into this account between expenses, cutting the interest bill further.

Most lenders offer 100% offset accounts on variable rate investment loans. Some cheaper packages offer partial offsets, which only reduce your interest by a percentage of the balance. If you're keeping decent cash reserves or have irregular income from projects, a full offset is worth more than a slightly lower advertised rate with no offset.

Making Extra Repayments Without Penalties

Variable rate loans let you pay more than the minimum without copping a penalty. Fixed loans charge you break fees if you try the same thing.

This matters when you've had a few solid months and want to throw extra cash at the loan. In our experience, plumbers with variable ABN income prefer this flexibility because work volume fluctuates. You're not locked into a set repayment amount. When the work's there, you can smash the loan down. When it's quieter, you stick to the minimum.

Some lenders cap extra repayments at a certain amount per year even on variable loans, so check the product disclosure before you commit. Others have no limit at all, which suits blokes who want to attack the debt hard when cash flow allows.

Redraw Facilities: Getting Your Money Back When You Need It

A redraw facility lets you pull back any extra repayments you've made above the minimum. Not all variable loans include this, and the ones that do often have conditions buried in the fine print.

Some lenders charge a fee every time you redraw. Others limit how many free redraws you get per year. A few make you redraw a minimum amount, which is useless if you only need a couple of grand for materials or a ute repair. When you're comparing investment loan options, ask how the redraw actually works in practice, not just whether it exists on paper.

The difference between redraw and offset matters too. Money in an offset is always yours to access instantly. Money you've paid extra on the loan and want to redraw might take a few days to process, and the lender can technically refuse it in some circumstances. For plumbers who need cash available quickly for work expenses or emergencies, an offset beats redraw every time.

Switching to Interest Only Repayments

Most variable rate investment loans let you switch between principal and interest repayments and interest only repayments without refinancing. Fixed loans don't give you this option mid-term.

You might start on interest only to keep repayments lower while the property finds tenants, then switch to principal and interest later to build equity faster. Or you might do the opposite if you're expanding your property portfolio and need to free up cash flow to service a second loan. Variable loans give you that room to move.

Lenders typically approve interest only periods for one to five years at a time on investment loans. After that, the loan reverts to principal and interest unless you apply for an extension. The application isn't automatic, so don't assume you can roll interest only indefinitely without proving the numbers still work.

Portability: Taking Your Loan to a New Property

Portability lets you transfer your existing loan to a different property without discharging and reapplying. This can save you thousands in discharge fees, application fees, and Lenders Mortgage Insurance if the new property requires a higher loan to value ratio.

Not every lender offers portability, and those that do often limit it to like-for-like situations. You can't usually port an investment loan to an owner-occupied property, for example. The new property also needs to meet the lender's current serviceability and security requirements, which might have changed since you first borrowed.

If you're planning to sell the Blacktown unit and upgrade to a three-bedroom townhouse in Penrith as your next investment, portability could save you the hassle of a full investment loan refinance. But it's not a feature most plumbers end up using, so don't let it sway your decision if everything else about the loan doesn't stack up.

Rate Discounts You Can Actually Negotiate

Variable rate investment loans come with advertised rates, but those aren't set in stone. Lenders discount rates based on loan amount, deposit size, and whether you're bringing other business to the table.

A plumber borrowing $500,000 with a 25% deposit will get a better rate than someone borrowing $300,000 with a 10% deposit. If you're also refinancing your owner-occupied home or rolling a car loan into the package, that gives you more leverage to negotiate. We regularly see rate discounts of 0.30% to 0.70% off the standard variable rate for investment loans when the numbers and the relationship justify it.

Some lenders also offer ongoing rate discounts if you maintain a certain offset balance or make extra repayments each year. Read the conditions carefully because missing the target by a dollar can cost you the discount for the entire year.

Call one of our team or book an appointment at a time that works for you. We'll run the numbers on which variable rate features actually matter for your situation and what you can negotiate based on your deposit and loan amount.

Frequently Asked Questions