Variable rate investment loans come with features that can help you manage cash flow, respond to rental vacancies, and retain control over your borrowing as your property portfolio grows.
Research pharmacists often have stable salaries and career progression, which supports borrowing capacity for investment loans, but your income structure also means you benefit from flexibility rather than locking into fixed repayment patterns. Variable rate products offer that flexibility through redraw facilities, offset accounts, and the ability to adjust repayment structures without break costs.
Redraw facilities and how they work on investor loans
A redraw facility lets you access extra repayments you've made above the minimum required amount. If you make additional payments during periods of higher income or lower personal expenses, you can withdraw those funds later when cash flow is tighter or when you need capital for another deposit.
Consider a research pharmacist who purchased a two-bedroom unit as an investment property and made extra repayments during the first 18 months while living at home. When they decided to purchase their own home, they withdrew the additional repayments via redraw to contribute toward the deposit, reducing the amount they needed to borrow for the new property. The original investment loan continued with its standard repayment schedule, and no refinancing or discharge fees applied.
Redraw is particularly useful for investors who want the security of reducing their loan balance without permanently losing access to that capital. Some lenders allow unlimited free redraws, while others impose monthly limits or small fees per transaction. If you're planning to use redraw as part of your property investment strategy, confirm the conditions before settling on a product.
Offset accounts vs redraw for investment properties
An offset account is a transaction account linked to your investment loan. The balance in the offset account reduces the interest charged on your loan without affecting the loan balance itself. For example, if you have a loan balance of $400,000 and $30,000 in your offset account, you're only charged interest on $370,000.
Unlike redraw, offset accounts don't require you to make additional repayments and then withdraw them. Funds in the offset remain fully accessible at all times, which can be important if you need immediate liquidity to cover unexpected property costs such as repairs, vacancy periods, or body corporate levies.
Not all lenders offer offset accounts on investment loans, and those that do may charge a slightly higher interest rate or an annual package fee. The value of an offset depends on how much you can keep in the account. If you regularly hold a balance equivalent to several months of salary or rental income, the interest savings can outweigh any additional costs. If the account sits near zero most of the time, a redraw facility may be more practical.
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Why variable rates suit investors planning to refinance or expand
Variable rate loans don't have break costs, which means you can refinance your investment loan or restructure your borrowing without penalty. This flexibility becomes important when you're looking to release equity to fund a second investment property or when a new lender offers a lower rate or different loan features.
In our experience, research pharmacists who plan to grow their property portfolio over several years benefit from variable products that allow them to access equity without needing to discharge and reapply. If you've built up equity in your first investment property and want to use that as part of your deposit for a second property, a variable loan structure allows you to leverage equity and adjust your borrowing without triggering exit fees or break costs.
Some lenders also allow you to split your loan, putting part of the balance on a fixed rate and part on a variable rate. This gives you some certainty around repayments while retaining access to redraw or offset features on the variable portion. If you're unsure which structure suits your situation, a broker can compare loan products from across multiple lenders and show you how different features affect both cash flow and total interest paid.
Interest-only repayments and switching to principal and interest
Most variable rate investment loans allow you to choose between interest-only and principal and interest repayments. Interest-only periods typically run for one to five years, during which your repayments only cover the interest charged each month. Your loan balance doesn't reduce, but your repayments are lower, which can improve cash flow in the early years of ownership.
After the interest-only period ends, the loan automatically converts to principal and interest repayments unless you request an extension. Extensions are subject to lender approval and depend on your equity position, rental income, and overall serviceability.
Interest-only repayments are commonly used by investors who want to maximise tax deductions or who are holding a property for capital growth rather than paying down debt. Because interest on an investment loan is generally tax-deductible, keeping the loan balance higher for longer can increase your annual deductions. However, this strategy depends on your broader financial goals and should be discussed with an accountant or financial adviser.
Variable loans give you the option to switch from interest-only to principal and interest at any time without penalty, which is not always possible with fixed rate products. If your income increases or rental yields improve, you can begin reducing the loan balance without needing to refinance or renegotiate your loan terms.
How lenders assess rental income on variable investment loans
Lenders typically apply a rental income assessment of around 70% to 80% of the gross rent, which accounts for vacancy periods, maintenance costs, and rental management fees. This means if a property generates $600 per week in rent, the lender may only count $420 to $480 per week as serviceable income when calculating your borrowing capacity.
If you're purchasing a property with a higher vacancy rate or seasonal rental demand, lenders may apply a lower percentage or request additional evidence of rental history. Properties in areas with strong rental demand and low vacancy rates are generally assessed more favourably, which can increase your borrowing capacity or reduce the deposit required.
Some lenders also allow you to use projected rental income based on a property valuation or rental appraisal, even if the property is not yet tenanted. This can be useful when purchasing off-the-plan or when settling on a property before it's advertised for lease. Your broker can confirm which lenders accept projected rental income and what documentation is required.
Loan portability and how it applies to investment properties
Loan portability allows you to transfer your existing loan to a different property without discharging the loan or reapplying. This feature is available on some variable rate investment loans and can be useful if you decide to sell your current investment property and purchase a different one within a short timeframe.
Portability is not universal across all lenders, and conditions vary. Some lenders require the new property to be of similar or higher value, and you may need to demonstrate that the rental income on the new property supports the existing loan amount. If you're considering selling and reinvesting within the same financial year, portability can help you avoid discharge fees, application fees, and additional settlement costs.
If portability is part of your property investment strategy, confirm whether your lender offers it and what conditions apply before committing to a sale contract.
Additional repayments without penalty
Most variable rate investment loans allow you to make additional repayments at any time without penalty. This gives you the flexibility to reduce your loan balance faster when you have surplus income or when rental returns exceed expectations.
Additional repayments reduce the total interest you pay over the life of the loan and can shorten the loan term if maintained consistently. However, if you're holding an investment property primarily for capital growth and maximising tax deductions, making large additional repayments may not align with your strategy. Speak to your accountant about whether paying down your investment loan or directing surplus income elsewhere makes more sense for your situation.
If you do make additional repayments and later need access to those funds, a redraw facility lets you withdraw them without refinancing. This gives you flexibility to respond to changes in your financial circumstances without losing the benefit of earlier repayments.
Variable rate investment loans are structured to give you control over your borrowing, repayment schedule, and access to equity as your portfolio grows. The features that matter most depend on your income structure, investment timeline, and whether you're planning to hold one property long-term or build a larger portfolio over time. Call one of our team or book an appointment at a time that works for you to discuss which loan features suit your situation.
Frequently Asked Questions
What is a redraw facility on an investment loan?
A redraw facility lets you access extra repayments you've made above the minimum required amount. This allows you to reduce your loan balance while retaining access to those funds if you need capital later for another deposit or unexpected expenses.
Can I switch from interest-only to principal and interest repayments on a variable investment loan?
Yes, most variable rate investment loans allow you to switch from interest-only to principal and interest repayments at any time without penalty. This flexibility lets you adjust your repayment structure as your income or investment strategy changes.
How do lenders assess rental income when calculating borrowing capacity?
Lenders typically assess around 70% to 80% of gross rental income to account for vacancies, maintenance, and management fees. If a property generates $600 per week, the lender may only count $420 to $480 per week as serviceable income.
What is the difference between an offset account and a redraw facility?
An offset account is a transaction account linked to your loan that reduces the interest charged without affecting the loan balance. A redraw facility lets you withdraw extra repayments you've made, but those funds must first be deposited into the loan.
Can I refinance a variable rate investment loan without penalties?
Variable rate loans do not have break costs, so you can refinance or restructure your borrowing without penalty. This flexibility is useful if you want to access equity, secure a lower rate, or change loan features.
