When you're ready to start buying an investment property on the Central Coast or in Narara, choosing the right loan structure can significantly impact your returns. Whether you're purchasing your first investment property or expanding an existing investment property portfolio, understanding the differences between fixed interest rate, variable interest rate, and split loan options is crucial for your property investment strategy.
Fixed Interest Rate Investment Loans
A fixed interest rate means your Investment Loan Interest Rate remains unchanged for a set period, typically between one to five years. This option provides certainty when calculating investment loan repayments, making it easier to plan your cash flow and assess rental yield potential.
Benefits of fixed rates:
• Predictable repayments help with budgeting
• Protection against rising interest rates
• Clearer financial planning for negative gearing calculations
• Stable costs when researching property investments
Considerations:
• You won't benefit if interest rates fall
• Less flexibility with additional repayments
• Potential break costs if you want to change loans early
• May have fewer investment loan options for features
Variable Interest Rate Investment Loans
Variable rates fluctuate with market conditions and lender decisions. Most banks and lenders across Australia offer variable options as their standard product, often with more investment loan features and flexibility.
Advantages include:
• Potential to benefit from falling rates
• Usually more loan features available
• Flexibility for additional repayments
• Often qualify for interest rate discounts
• Access to offset accounts and redraw facilities
Potential drawbacks:
• Repayments can increase unexpectedly
• Harder to predict long-term costs
• Requires more active monitoring of the property market
Ready to get started?
Book a chat with a Finance and Mortgage Broker at Coco Finance Broking today.
Split Loan Investment Options
Split loans combine both fixed and variable portions, allowing you to hedge your bets. You might fix 60% of your loan amount while keeping 40% variable, or choose any combination that suits your risk tolerance and property investment strategy.
Why consider splitting:
• Balance stability with flexibility
• Reduce exposure to interest rate movements
• Access different investment loan options within one facility
• Customise your approach based on borrowing capacity
Factors Affecting Your Choice
Your Investment Property Type
Whether you're buying a town house, apartment, or stand alone dwelling can influence your decision. Different property types may have varying rental yields and capital growth prospects, affecting which rate structure works better.
Loan to Value Ratio (LVR) Considerations
Your LVR impacts both your interest rate and whether you'll pay lenders mortgage insurance (LMI). Higher LVR loans might benefit more from fixed rates to provide payment certainty, especially when factoring in LMI costs and stamp duty.
Current Market Conditions
The property market cycle and interest rate environment should influence your decision. When rates are low, fixing might lock in favorable conditions. When rates are high, variable options might offer more potential for future savings.
The Application Process Considerations
When applying for an investment loan, lenders will assess your borrowing capacity based on various factors including:
• Income verification through bank statements
• Existing debts and commitments
• The rental income potential of your investment property
• Your overall financial position
The streamlined application process varies between lenders, and some may offer different terms for fixed versus variable loans. Having access to investment loan options from multiple banks and lenders across Australia means you can compare not just rates, but also loan features and application requirements.
Making Your Decision
There's no one-size-fits-all answer when choosing between fixed, variable, or split options for your rental property loan. Consider your:
• Risk tolerance
• Cash flow requirements
• Investment timeline
• Current financial situation
• Future property investment plans
Many successful property investors use different strategies for different properties in their portfolio. Your first investment property might suit a different approach compared to subsequent purchases.
Whether you're investing in real estate for the first time or expanding your portfolio, the right loan structure can make a significant difference to your returns. Consider your personal circumstances, investment goals, and market conditions when making this important decision.
Ready to explore your investment loan options? Call one of our team or book an appointment at a time that works for you to discuss which loan structure aligns with your property investment strategy.
