Variable Rate Investment Loans: What Hillarys Investors Need

A variable rate investment loan is a loan where your interest rate can move up or down over time, and for many Hillarys investors it is the most flexible place to start.

The lender can change the rate when its costs or the wider market change. That means your repayments can change too. This article explains how the rate works, how to estimate repayments, and the trade-offs to weigh before you apply.

What Is a Variable Rate Investment Loan?

A variable rate investment loan has an interest rate that your lender can raise or lower during the loan term. Your repayments change when the rate changes.

The rate is set by the lender, and it is influenced by factors such as funding costs and the Reserve Bank's cash rate. The RBA cash rate is currently 4.85% p.a., but your investment loan rate will be set by your lender, your deposit size and the loan structure you choose.

The main benefit is flexibility. Many variable loans allow extra repayments, and some come with offset or redraw facilities, although features differ between lenders and products. The main risk is that repayments can rise when rates rise, so you need a buffer in your budget.

How Do You Calculate Variable Rate Investment Loan Repayments?

You calculate repayments from the loan amount, the interest rate and the loan term, and the result depends on whether you choose principal and interest or interest only.

As an illustrative example only, we will use a rate of 6.75% p.a. on a $500,000 loan over 30 years. On principal and interest, the monthly repayment is about $3,243. On interest only, the monthly repayment is about $2,813, which is $500,000 x 6.75% / 12.

The interest-only figure looks lower, but the loan balance does not fall. If that loan had a five-year interest-only period, repayments would then switch to principal and interest over the remaining 25 years. At the same 6.75% p.a., that would be about $3,455 a month, which is higher than the $3,243 you would have paid from day one. Your own figures will differ, so use our borrowing capacity calculator to test different amounts.

Lenders also assess interest-only loans on the principal and interest repayments over the remaining term. This means choosing interest only does not increase how much you can borrow.

How Much Can You Borrow for an Investment Property?

Your borrowing amount depends on your income, your debts, the rental income the lender will count and the buffer it applies to the interest rate.

Banks and other authorised deposit-taking institutions must assess new borrowers at a rate at least 3.0 percentage points above the loan rate. That buffer applies whether the loan is variable or fixed. Lenders generally count only part of the expected rent, and APRA's guidance suggests a haircut of at least 20 per cent to allow for periods without a tenant.

Existing debts matter as well. Credit card limits can reduce your capacity even if the card has a zero balance, because lenders often assess the limit rather than the balance.

APRA also limits how much of each bank's new lending can be at a debt-to-income ratio of six times or more. This is a limit on the bank's overall lending, not on you as an individual. Lenders still assess each application under their own policies. A broker can compare lenders across Australia to find one whose policy suits your circumstances. Our investment loans page explains how we approach this.

Variable or Fixed Rate: Which Suits an Investor?

A variable rate suits an investor who wants flexibility, while a fixed rate suits one who wants certainty over repayments for a set period.

As an example, consider a Hillarys investor buying a rental with a 20 per cent deposit. They are working to a tight budget and want certainty, so they split the loan, fixing part and leaving part variable. The fixed portion gives them predictable repayments on that share. The variable portion lets them make extra repayments if the rental income allows.

The outcome is a mix of certainty and flexibility. The trade-off is that fixed portions can carry break costs if you repay or change them early, and features such as offset or extra repayments can be limited on fixed portions. Rules differ by lender, so check the product terms before you commit.

Interest Only or Principal and Interest on a Variable Loan?

Interest only keeps repayments lower for a set period, while principal and interest reduces your debt from the first repayment.

Interest-only periods are usually one to five years, though lenders set their own terms. Because the balance does not fall, you owe the same amount at the end of the period, and the later repayments are higher because they are spread over a shorter term, as the example above shows.

For tax, interest on money borrowed to buy a rental property is generally deductible while the property is rented or available for rent. Only the interest part of a principal and interest repayment is deductible, and the principal part is not. Interest-only repayments do not automatically produce a bigger deduction. Speak with your accountant about how this applies to you.

Tax Changes Every Hillarys Investor Should Know About

Negative gearing rules now depend on when you acquired the property and whether it is an established home or an eligible new build.

Properties held at 7:30pm AEST on 12 May 2026, including those under contract, keep full deductibility of rental losses against other income until sold. 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. Eligible new builds can continue to deduct losses against all income.

Capital gains tax is changing too. From 1 July 2027, the 50 per cent discount is replaced by cost base indexation and a 30 per cent minimum tax rate on gains accruing from that date. These changes do not affect whether interest is deductible, but they change how losses and gains are treated. Get advice from your accountant before you buy.

Using Equity and Refinancing an Existing Investment Loan

You can often borrow against the equity in your home or an existing rental to fund another purchase, but lender approval is needed and the loan amount will rise.

Lenders set their own limits, and borrowing above 80 per cent of the property's value generally requires Lenders Mortgage Insurance. The deductibility of interest depends on what the borrowed money is used for. Funds used for a private purpose, such as a holiday, do not produce deductible interest, even if the loan is secured by an investment property.

If you already have an investment loan, our refinancing service can review whether your current rate and features still suit you. A loan health check is a good starting point. Refinancing can involve discharge, valuation and other fees, so the saving needs to outweigh those costs.

Local Finance Support for Hillarys Investors

We work with Hillarys residents on investment finance, and you can read more on our Hillarys mortgage broker page.

Call one of our team or book an appointment at a time that works for you, and we will compare variable rate investment loan options from lenders across Australia and talk through the costs and risks before you decide.

Frequently Asked Questions