A variable rate investment loan gives you flexibility, but your repayments can rise when your lender raises its rate. For Tarneit residents considering a first or next investment property, the useful question is which features you will actually use and what each one costs you.
This article covers the features that differ between variable rate investment loan products, how interest-only repayments behave, and how lenders assess your borrowing. Our investment loans page gives a wider overview.
What Features Does a Variable Rate Investment Loan Have?
A variable rate loan has an interest rate that your lender can change over time, and many lenders pair it with features such as an offset account, redraw and extra repayments. Which features are offered, and at what fee, is set by each lender and varies from product to product.
The main trade-off is certainty. When the lender lifts its rate, your repayment rises. A fixed rate gives a set repayment for a set period, but features such as extra repayments or an offset may be limited or unavailable depending on the lender. Some investors split a loan between fixed and variable portions. Ask your broker how a particular lender treats each portion.
The features worth comparing are:
- Whether an offset account is full or partial
- Any annual package fee that comes with the features
- Whether interest-only terms can be changed later
- Any limits on extra repayments
You can test how an offset might affect your interest with our home loan offset calculator.
How Do Interest-Only Repayments Work on a Variable Rate Loan?
With an interest-only loan, you pay only the interest charged for a set period, so the loan balance does not fall. Once that period ends, repayments usually revert to principal and interest, and they are then spread over a shorter remaining term.
Consider an investor in Tarneit with an illustrative $500,000 variable rate loan over 30 years. For this example, we use an illustrative rate of 6.75% p.a. This is not a quoted rate.
- Interest-only for five years: about $2,812 a month
- Principal and interest over the full 30 years: about $3,243 a month
- Principal and interest over the remaining 25 years, after the interest-only period: about $3,455 a month
The investor saves roughly $430 a month during the first five years. Yet the balance is still $500,000 when the period ends. The repayment then jumps by about $643 a month compared with the interest-only amount, because the same debt must now be repaid over 25 years instead of 30. If the variable rate has risen by then, the repayment would be higher again.
The outcome is a lower repayment early on, balanced against a larger step up later. An investor who plans for that step, perhaps by saving the difference in an offset account, is better prepared. Use our loan repayment calculator to run your own numbers.
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Do Offset and Redraw Facilities Affect Your Tax Deductions?
Yes, both can change how much interest you can claim, so it pays to understand them before you use either. Please speak with your accountant about your own situation, as tax outcomes depend on individual circumstances.
An offset account reduces the balance on which interest is charged. Your interest cost is lower, and so is the interest you can claim. The loan balance itself stays the same.
Redraw works differently. Under the ATO's ruling TR 2000/2, each redraw is treated as a separate borrowing, and deductibility depends on what you use the money for. If you redraw funds for a personal purpose, such as a holiday or a car, interest on that portion is not deductible. This can reduce the deductible part of an investment loan.
Also, only the interest portion of a principal and interest repayment is deductible. The principal portion repays the debt and is not. Keeping personal spending separate from investment loan accounts makes record keeping clearer for your accountant.
How Do Lenders Assess Your Investment Loan Application?
Banks must test whether you could afford the loan at an interest rate at least 3.0 percentage points above the actual rate. This buffer applies to authorised deposit-taking institutions, and APRA confirmed it at 3.0 percentage points in May 2026.
Using our illustrative 6.75% rate, a bank would assess your repayments at 9.75%. Non-bank lenders are not bound by this particular buffer, though they have their own credit policies.
For interest-only loans, lenders assess repayments as if principal and interest applied over the remaining term after the interest-only period. An interest-only feature therefore does not increase your borrowing capacity. You can estimate yours with our borrowing capacity page.
Rental income is also treated cautiously. APRA expects lenders to count no more than 80% of expected rent, to allow for vacancy. Lenders decide for themselves what rental evidence they accept.
Borrowing more than 80% of the property's value generally requires lenders mortgage insurance (LMI). The premium is paid by you and depends on the loan size and your deposit. Each lender sets its own limits above 80%.
What Has Changed for Negative Gearing on Investment Properties?
The tax rules for net rental losses now depend on when you bought the property and whether it is an established home or a new build. Losses on residential properties held at 7:30pm AEST on 12 May 2026 continue to be deductible against other income, including salary, until the property is sold. Losses on eligible new builds acquired after that time can also be deducted against all income.
From the 2027-28 income year, net rental losses on established residential properties bought after that time can only be deducted against other residential property income, including residential capital gains. Excess losses carry forward. The change does not affect whether the interest itself is deductible. It changes how a loss can be used.
Because the rules turn on purchase date and property type, ask your accountant to confirm how they apply before you sign a contract. If you are refinancing an existing investment, our refinancing page explains how a review works.
Tarneit residents can also speak with our local team through our Tarneit mortgage broker page.
If you would like to compare variable rate investment loan options from lenders across Australia, call one of our team or book an appointment at a time that works for you through our book appointment page.
Frequently Asked Questions
What is a variable rate investment loan?
It is an investment loan with an interest rate that your lender can change over time. Your repayments can rise or fall as a result, and features such as offset accounts or redraw may be available depending on the lender.
Does an interest-only loan increase how much I can borrow?
No. Lenders assess interest-only loans as if principal and interest repayments applied over the remaining term after the interest-only period. This means borrowing capacity is not increased.
Is redraw interest on an investment loan always tax deductible?
No. Under ATO ruling TR 2000/2, deductibility depends on what the redrawn funds are used for. Interest on money used for private purposes is not deductible, so speak with your accountant.
Do I need lenders mortgage insurance for an investment loan?
LMI is generally required when borrowing more than 80% of the property's value. The premium is paid by the borrower, and each lender sets its own limits above that level.
