Simple hacks to get variable investment rates that work

Why Variable Rates on Investment Loans Cost More Than Owner Loans

Variable rate investment loans usually sit 0.3 to 0.6 percentage points higher than owner-occupier rates at the same lender. Banks price investment lending with a higher capital cost under prudential rules, which they pass on to you.

Consider a detective buying a unit near the Parramatta Justice Precinct who wants to keep it available if a transfer comes through. The property will be rented in the meantime, so the loan is classified as an investment. At current variable rates, that investor might be quoted 6.4 per cent while an owner-occupier at the same lender with the same deposit is offered 5.9 per cent. The investor still benefits when the Reserve Bank cuts rates, but starts from a higher base. The gap exists because investment loans attract higher risk weights under Prudential Standard APS 112, which increases the amount of capital the lender must hold against that loan. That capital cost flows through to pricing.

The rate you actually receive depends on the loan amount, your deposit size, whether you choose interest-only or principal-and-interest repayments, and the lender's current appetite for investment business. Some lenders discount investor rates more heavily than others at different points in the cycle. A broker who works across multiple lenders can show you where the margin is narrowest right now.

Interest-Only Versus Principal-and-Interest Repayments

You can structure a variable investment loan as interest-only or principal-and-interest, and the choice affects your rate and your monthly repayment.

Interest-only repayments let you claim maximum deductions against rental income and preserve cash flow, which matters when you're covering holding costs between tenants or balancing multiple properties. Lenders usually offer interest-only terms up to five years on residential investment loans, after which the loan converts to principal-and-interest unless you apply to extend. The rate on an interest-only variable loan is generally 0.1 to 0.2 percentage points higher than the principal-and-interest rate for the same product. After the interest-only period ends, repayments increase because you're paying down the loan balance as well as covering interest.

Principal-and-interest repayments reduce the loan balance from the start and usually attract a slightly lower rate. This structure makes sense if your rental income comfortably covers the higher repayment and you're focused on paying down the debt over time. Some investors switch to principal-and-interest once their portfolio is established and cash flow improves. Both structures are available on variable rates, and you can usually switch between them during the life of the loan, subject to lender approval and your continued serviceability at the time of the request.

How Offset Accounts Work on Variable Investment Loans

An offset account linked to a variable investment loan reduces the interest you pay without reducing your deductible interest expense for tax purposes.

When you park cash in a 100 per cent offset account, the lender calculates daily interest on your loan balance minus the offset balance, but your loan balance stays unchanged. If your investment loan is $500,000 and you hold $50,000 in offset, you pay interest on $450,000 but the loan statement still shows $500,000 outstanding. At tax time, you can claim interest on the full loan amount because the ATO treats offset savings as interest not charged, not interest paid and rebated. The benefit compounds over time and increases in value when rates rise.

Not every lender offers offset on investment loans, and those that do sometimes charge a higher rate or annual fee for the feature. The value depends on how much cash you can hold in the account consistently. Offset accounts work only with variable rates. If you fix part of the loan, the offset applies only to the variable portion. Investors who receive intermittent rental income or build cash reserves for maintenance and vacancy periods get the most value out of offset functionality.

The LVR Bands That Change Your Rate and Lenders Mortgage Insurance

Lenders price investment loans in bands based on your loan-to-value ratio, and the rate increases as your deposit gets smaller.

Most lenders offer their lowest investor rates up to 80 per cent LVR, which means you're contributing at least a 20 per cent deposit plus costs. Between 80 and 90 per cent LVR, the rate usually increases by 0.1 to 0.3 percentage points and you pay Lenders Mortgage Insurance. Above 90 per cent LVR, fewer lenders will touch investment lending at all, and those that do price it higher again. Some lenders stop at 90 per cent for investors, while others will go to 95 per cent in limited circumstances, usually for high-income borrowers with strong serviceability.

LMI is calculated on a sliding scale based on loan amount and LVR, and the premium can add several thousand dollars to your upfront costs. It's a one-off charge that protects the lender, not you, but it lets you enter the market sooner if you don't have a 20 per cent deposit saved. The premium is not deductible for investment property purchases. For serving police and detectives, some lenders offer LMI waivers or discounts up to higher LVRs, which can reduce the entry cost when you're buying an investment property without a full 20 per cent deposit.

Once your LVR improves through repayments or capital growth, you can ask the lender to re-price the loan at a lower rate tier. Some lenders do this automatically, others require a formal request and a new valuation. It's worth checking every couple of years, particularly if property values have increased in your area.

Rate Discounts and How to Get Them

Most lenders publish a standard variable rate and then offer discounts off that rate based on loan size, LVR and product features.

The discount is usually expressed as a percentage off the standard rate, such as 0.8 per cent or 1.2 per cent. A larger loan amount, lower LVR and principal-and-interest repayments generally attract a bigger discount. Discounts also vary by lender and change regularly based on each lender's funding costs and appetite for new investment business. Two lenders might publish similar standard rates but offer different discounts, which means the rate you actually pay can be very different.

When you refinance your investment loan, you're often able to secure a better discount than your current lender is offering, because lenders compete harder for new business than they do to retain existing customers. A broker can show you current discounts across multiple lenders and negotiate on your behalf. Some lenders also offer additional rate reductions for borrowers in specific occupations, including law enforcement, which can stack on top of standard discounts.

Rate discounts are not locked in for the life of the loan. Lenders can reduce your discount or increase the standard variable rate at any time, although they must give you notice. Reviewing your rate annually makes sure you're not sitting on a discount that has eroded over time while newer customers at the same lender are receiving better pricing.

Debt-to-Income Limits That Apply from February This Year

From 1 February this year, lenders can approve only 20 per cent of new investment loans to borrowers with total debt six times their income or higher.

If your total borrowing across all loans, including your home loan, investment loans and any other debt, is six times your gross annual income or more, you fall into the portion of lending that is now capped at 20 per cent of each lender's quarterly investment loan volume. This does not mean you cannot borrow, but it does mean some lenders will decline your application even if you can service the loan, simply because they have already filled their quota for that quarter. The limit is set by APRA and applies to all banks, credit unions and building societies.

The calculation includes all debt, not just the new loan. A detective earning $120,000 annually with an existing home loan of $400,000 and applying for a $300,000 investment loan has total debt of $700,000, which is 5.8 times income and sits just under the threshold. If the investment loan were $320,000 instead, total debt would be 6.0 times income and the application would count against the lender's 20 per cent cap. Different lenders have different levels of headroom in any given quarter. A broker who understands each lender's current position can direct your application to a lender with capacity, rather than sending it somewhere that will decline due to portfolio limits rather than your financial position.

Existing borrowers are not affected by the limit. If you already hold investment loans, the limit does not apply unless you are taking out a new loan or increasing an existing one.

Variable Rates and Portability Between Properties

Most variable rate investment loans let you port the loan to a new property if you sell and buy another investment within a short window.

Portability means you can keep your existing loan, rate and terms when you sell one property and buy another, rather than discharging the loan and applying for a new one. This saves on discharge fees, application fees and sometimes valuation costs. The lender will usually require you to settle the new purchase within 30 to 90 days of selling the old property, and the new property must be acceptable security. If the new property is more valuable and you need to borrow more, the additional amount is treated as a new loan and priced at current rates.

Portability is more common on variable loans than fixed loans, because fixed loans often carry break costs if you repay early. If you're building a portfolio and expect to trade properties over time, a variable loan gives you more flexibility to move between assets without penalty. Not all lenders offer portability, and some restrict it to specific products or loan types. It's worth confirming portability terms upfront if this flexibility matters to your investment approach.

If you're considering selling one investment property and expanding your property portfolio with another, portability can reduce the friction and cost of that transition, provided the timing lines up and the lender agrees to the new security.

What Happens to Deductions Under Negative Gearing Changes

If you exchange contracts on an established investment property after 12 May this year, rental losses can only be offset against other residential property income from the 2027-28 financial year onward.

Properties held or under contract before that date, and new builds purchased after that date, continue to allow rental losses to be deducted against your salary and other income. For affected properties, rental losses are quarantined and can only be used to reduce income from other residential properties, including capital gains when you sell. Losses can be carried forward indefinitely until you have residential property income to offset them against. Interest on your investment loan is still deductible, but if your deductions exceed your rental income, that loss is no longer immediately deductible against your detective salary unless the property is grandfathered or a qualifying new build.

This changes the cash flow and tax position for investors buying established property. If you're considering an investment purchase, the date you exchange contracts determines which tax treatment applies, not the date you settle or the date you apply for the loan. Your variable rate and loan structure are not directly affected by the negative gearing changes, but your after-tax holding cost is. Investors affected by the change may put more weight on properties with strong rental yields or those that are close to cash flow neutral, rather than properties that rely heavily on capital growth with high negative gearing in the early years.

A broker can help you model the numbers before you commit, but you should also speak to your accountant about the tax treatment that will apply to your specific situation and timing.

Call one of our team or book an appointment at a time that works for you. We'll walk through your options, show you current variable rates across lenders who work with law enforcement, and structure a loan that fits your roster and your investment approach.

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