The Clearest Way to Compare Fixed vs Variable Loans

Understanding Investment Loan Options for McKinnon Property Investors

When buying an investment property in McKinnon, one of the most important decisions you'll face is choosing between fixed rate, variable rate, or split loan options. Each investment loan product offers distinct investment loan features and investment loan benefits that can significantly impact your property investment strategy and overall financial position.

For McKinnon residents looking to build wealth through property investment, understanding these differences is essential for maximising tax deductions and achieving financial freedom. The right investment loan can help you manage cash flow, take advantage of negative gearing benefits, and position yourself for portfolio growth.

Variable Rate Investment Loans

A variable interest rate investment loan means your interest rate fluctuates based on market conditions and lender decisions. When you access investment loan options from banks and lenders across Australia, variable rate products are often the most flexible choice.

Key Features of Variable Rate Loans:

• Interest rate discounts may be available depending on your loan amount and loan to value ratio (LVR)
• Ability to make additional repayments without penalty
• Option to redraw extra funds you've paid into the loan
• Flexibility to refinance or switch products without significant break costs
• Access to offset accounts to reduce interest charges

For property investors who need rental income flexibility and want to leverage equity for future purchases, variable rate loans offer considerable advantages. The investor interest rates can decrease when the Reserve Bank reduces the cash rate, potentially lowering your calculating investment loan repayments. However, rates can also increase, which requires careful financial planning.

Variable rate loans are particularly suitable for investors who:

• Plan to sell the property within a few years
• Want to make extra repayments to reduce the principal faster
• Prefer flexibility over certainty
• Are comfortable with interest rate movements

Fixed Rate Investment Loans

A fixed interest rate investment loan locks in your investor interest rates for a set period, typically between one and five years. This provides certainty about your investment property finance costs regardless of market movements.

Key Features of Fixed Rate Loans:

• Guaranteed interest rate for the fixed term
• Predictable investment loan repayments for budgeting purposes
• Protection from interest rate increases
• Typically limited or no additional repayment options
• Break costs may apply if you refinance or sell during the fixed period

Fixed rate investment loan products appeal to investors who prioritise stability in their property investment strategy. You'll know exactly what your repayments will be, making it easier to calculate passive income from rental returns after accounting for claimable expenses.

However, fixed rates come with limitations. Most fixed investment loan options restrict additional repayments to around $10,000 to $30,000 per year. You also cannot access an offset account, and if you need to break the loan early, substantial fees may apply. Additionally, if investor interest rates fall, you won't benefit from the reduction until your fixed term expires.

Consider a fixed rate expiry review if your current fixed term is ending soon to explore your refinancing options.

Split Loan Options: The Balanced Approach

A split loan combines both fixed and variable components within a single investment loan application, allowing you to enjoy benefits from both structures. For example, you might fix 60% of your investment loan amount at a set rate while keeping 40% variable.

Advantages of Split Loans:

• Balance between certainty and flexibility
• Partial protection from interest rate increases
• Ability to make extra repayments on the variable portion
• Access to offset accounts on the variable component
• Diversification of interest rate risk
• Flexibility to adjust the split ratio when refinancing

Split loans are increasingly popular among McKinnon property investors who want to hedge their position. If rates rise, the fixed portion provides protection. If rates fall, the variable portion allows you to benefit from the reduction.

When structuring your investment property loan, consider your investor deposit, the loan amount, and how Lenders Mortgage Insurance (LMI) might affect your borrowing capacity. A split structure can be adjusted based on your appetite for risk and your cash flow requirements.

Interest Only vs Principal and Interest

Regardless of whether you choose fixed, variable, or split investment loan features, you'll also need to decide between interest only and principal and interest repayments.

Interest Only Investment Loans:

• Lower monthly repayments during the interest only period
• Maximises cash flow for property investors
• Allows you to leverage equity more effectively
• Takes full advantage of negative gearing benefits
• Typically available for up to five years

Interest only investment loans are particularly attractive for negative gearing strategies where you're offsetting rental property expenses against other income to maximise tax deductions. The lower repayments free up capital for portfolio growth or covering periods with a higher vacancy rate.

Principal and Interest Loans:

• Gradually reduces your loan amount over time
• Builds equity in the investment property faster
• Lower overall interest costs across the loan term
• More suitable for long-term wealth building

Many investors in McKinnon use interest only during the initial years to manage cash flow, then switch to principal and interest as rental income increases or their financial position strengthens.

Making the Right Choice for Your Investment Strategy

Selecting between fixed, variable, and split investment loan products depends on several factors specific to your circumstances:

1. Your risk tolerance: How comfortable are you with interest rate fluctuations affecting your cash flow?
2. Investment timeframe: Are you planning to hold the property long-term or sell within a few years?
3. Cash flow needs: Do you need rental income certainty or flexibility for additional repayments?
4. Market outlook: What's your view on interest rate movements?
5. Property investment strategy: Are you focused on negative gearing, capital growth, or passive income generation?

For McKinnon residents, it's worth considering local property market conditions, including average vacancy rates, rental yields, and capital growth potential. Factors like body corporate fees for units and stamp duty calculations should also influence your investment loan application decisions.

Working with Finance Broker Melbourne

At Finance Broker Melbourne, we help McKinnon property investors access investment loan options from banks and lenders across Australia. Our experience with investment property rates means we can compare hundreds of investment loan products to find solutions that align with your property investment strategy.

We assist with:

• Calculating investment loan repayments for different scenarios
• Understanding your investor borrowing capacity
• Structuring loans to maximise tax benefits
• Managing investment loan refinance opportunities
• Equity release strategies for portfolio expansion
• Navigating Lenders Mortgage Insurance requirements

As your local mortgage broker in McKinnon, we understand the Bayside property market and can provide tailored advice on building wealth through property investment. Whether you're purchasing your first rental property or expanding an existing portfolio, we'll guide you through the investment loan application process.

Our service extends to residents across surrounding suburbs, and we specialise in various investment loans and refinancing solutions.

Call one of our team or book an appointment at a time that works for you to discuss your property investor loan options and start building your path to financial freedom.