Variable Rate Investment Loans
Flexibility That Fixed Rates Can't Match
Most Perth property investors choose variable rates for their first purchase, because the structure lets you sell or refinance without break fees when your circumstances change. Fixed rates lock you in for 1-5 years; if you sell early or want to switch to a better deal, the break cost can run to thousands. Variable loans don’t have that problem — you can exit or switch at any time.
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We Compare Variable Rates Across 30+ Lenders to Find the Right Fit
Why Investors Pick Variable Over Fixed
Fixed rates sound safer when headlines talk about rate rises, but the trade-off is real. On a fixed loan you can’t make extra repayments beyond a small annual cap (typically $10,000-$30,000 per year depending on the lender), you lose access to offset accounts and redraw, and you’re committed for the full term. If you want to sell the property or refinance to release equity for your next purchase, you’ll pay a break fee calculated on the interest the lender loses by letting you out early.
Variable loans give you:
- Unlimited extra repayments — pay down the principal faster without penalty, which cuts your interest cost over the life of the loan.
- Offset account or redraw — park surplus cash against the loan balance to reduce interest, or redraw funds when you need working capital for renovations or the next deposit.
- No break fees — sell the property or refinance whenever you want, at no exit cost.
- Rate follows the market — when the cash rate drops, variable rates usually follow within weeks (fixed rates are priced off longer-term bond yields and don’t move in sync with RBA announcements).
The downside is rate risk. When the RBA lifts the cash rate, lenders pass it on to variable borrowers within 30 days. Your repayment can jump $100-$300 per month per 0.25% rise on a typical $500k loan. If your rental yield is tight, that cuts into cashflow.
Variable Rate Structures For Property Investors
Lenders price investment variable rates 0.30-0.60% above owner-occupier rates. Within variable investment lending, you'll see three main structures:
Principal and Interest (P&I) Variable
You repay principal plus interest each month. The loan balance reduces over time. Most lenders prefer P&I for investment loans because it lowers their credit risk, and you’ll get a better rate — typically 0.10-0.20% lower than interest-only on the same property. P&I makes sense when you’re holding the property long-term and want to build equity, or when your rental income comfortably covers the higher repayment.
Interest-Only (IO) Variable
You pay only the interest for an agreed period (typically 1-5 years), then the loan reverts to P&I. The monthly repayment is lower, which maximises cashflow and preserves capital for your next purchase. Interest-only costs you more over the life of the loan because you’re not reducing the principal during the IO period, but it’s the right structure when negative gearing is part of your strategy or when you’re planning to sell within 5-10 years.
Line of Credit (LOC) Variable
A revolving credit facility secured against your property. You draw funds as needed up to your approved limit, repay when cashflow allows, and redraw at any time. Interest is calculated daily on the outstanding balance. LOC rates sit 0.30-0.80% above standard variable rates, and most lenders cap LOC lending at 80% LVR. It’s a flexible structure for experienced investors who manage multiple properties or use equity to fund renovations.
Rate Movements and What They Mean For Your Cashflow
Between May 2022 and November 2023, the RBA lifted the cash rate from 0.10% to 4.35% — the fastest tightening cycle since the early 1990s. Variable investment loan rates climbed from around 2.50-3.00% to 6.00-6.80% over the same period. On a $500,000 loan, that’s a repayment increase of roughly $1,400-$1,600 per month.
If your rental income was $2,200 per month before the cycle started, you were positively geared or close to break-even. After the rate rises, you’re now negatively geared by $800-$1,200 per month unless you lifted the rent (which tenants in Perth’s tight market have absorbed, but not everywhere).
Variable rate risk is real. The benefit is that when the cycle turns — and it always does — you’re first in line for rate cuts. Fixed-rate borrowers who locked in at 5.50-6.00% in 2023 are stuck at that rate until their fixed term expires, even if the RBA drops the cash rate to 3.00% in 2025.
Western Australia market-specific notes
Perth’s property market is cyclical. Between 2014 and 2019, median house prices in Perth dropped 15-20% while Sydney and Melbourne climbed 40-50%. Investors who bought at the 2014 peak with high LVR loans found themselves in negative equity — owing more than the property was worth — which limited their ability to refinance or sell without taking a loss.
Variable rates gave those borrowers an exit option. When the market turned in 2020-2023 and Perth prices rebounded 30-40%, they could refinance to a better rate, release equity, or sell without break fees. Fixed-rate borrowers from 2019-2020 who locked in at 2.50-3.00% for 3-5 years are now rolling onto variable rates at 6.00-6.50% in 2024-2025 — a 3.00-3.50% jump that hits cashflow hard.
Western Australia also has specific stamp duty exemptions for off-the-plan purchases and foreign buyer surcharges (7% additional duty for non-residents). If you’re buying off-the-plan with a variable loan, the flexibility matters — settlement can be delayed 12-24 months, and if your financial position changes or the market softens, you’re not locked into a fixed rate that was priced 18 months ago.
Offset Accounts vs Redraw On Investment Loans
Both reduce your interest cost by parking surplus cash against the loan balance, but they work differently for tax purposes.
Offset Account (Cleanest for Investors)
A separate transaction account linked to your loan. The balance offsets the loan principal for interest calculation, but the funds remain yours — you can spend them without affecting the loan structure. For investment loans, offset balances don’t reduce your tax-deductible interest, which is calculated on the full loan amount. This is the cleanest structure for investors.
Redraw Facility (Requires Discipline)
Lets you withdraw extra repayments you’ve already made. When you redraw, you’re re-borrowing funds, which can complicate your tax position if you use the redrawn amount for private purposes (the ATO treats it as a new loan purpose, so the interest on that portion may not be deductible). Redraw is fine if you’re disciplined about keeping investment and private funds separate, but offset is simpler.
Variable Rate FAQs — Investment Loans
Yes. Most lenders let you convert part or all of your variable loan to a fixed rate at any time, subject to their current fixed rates. The process takes 1-2 weeks. If you’re switching because rates are rising, check whether the fixed rate on offer is actually better than staying variable — fixed rates are usually priced 0.20-0.50% above the equivalent variable rate at the time you lock in, so you’re betting rates will rise further.
Yes. Investment variable rates sit 0.30-0.60% above owner-occupier rates on the same product. The margin reflects default risk and regulatory capital requirements — banks hold more capital against investment loans, which increases their cost of funds.
Yes, up to 90% LVR, but you’ll pay LMI. Some lenders cap investment lending at 85% LVR; others go to 90% if you meet their serviceability buffer (typically 3.00-3.25% above the actual rate). If your deposit is genuine savings (held in your account for 3+ months) rather than a gift or bonus, you’ll have more lender options. See low deposit investment loans for more detail.
Variable rates move in response to RBA cash rate decisions (announced on the first Tuesday of each month, except January) and lender funding cost changes. When the RBA moves, most lenders adjust their variable rates within 2-4 weeks. Lenders can also change rates independently — if their cost of funds increases (e.g. wholesale funding markets tighten), they may lift rates even if the RBA holds steady.
The rate usually drops 0.10-0.20% because P&I loans carry lower credit risk than interest-only. Your repayment increases because you’re now paying principal as well as interest, but the rate itself improves. Some lenders automatically revert you to P&I at the end of the IO period; others require you to apply for an IO extension if you want to continue interest-only.
Yes. Each loan is a separate facility with its own rate, even if they’re all secured by different properties. If you refinance one loan to a better rate, the others stay on their existing rates unless you refinance them too. Some lenders offer portfolio discounts if you hold 3+ loans with them — typically 0.05-0.10% off the standard variable rate.
No. Lenders don’t require annual revaluations on variable loans unless you’re refinancing, increasing your limit, or requesting a formal equity release. If you’re just holding the loan and making repayments, they’ll use the original valuation for LVR purposes until the next time you interact with them.
Variable investment loans suit investors who plan to hold the property 10+ years (over a full property cycle, variable rates average out to match or beat fixed rates), want to pay down the loan faster (unlimited extra repayments without penalty), expect to refinance or sell within 3-5 years (no break fees), or value offset or redraw access. Variable rates are riskier if your cashflow is tight (a 0.50-1.00% rate rise could push you into negative gearing territory), you’re new to investing and want repayment certainty, or you’re buying at the top of a rate cycle and locking in a fixed rate for 2-3 years protects you from further increases.
How a Broker Helps with Variable Investment Loans
Not all variable investment loans are the same. Some lenders offer offset at no extra cost; others charge 0.10-0.20% more. Some cap offset at 80% LVR; others allow it at 90%. Some lenders let you split your loan 50/50 fixed/variable to hedge rate risk; others don’t offer splits on investment loans at all.
A broker who works with property investors daily knows which lenders have the best variable rates for your LVR, property type, and loan purpose. We also know which lenders are fast — if you’re competing in a hot market and need unconditional approval within 48 hours, that narrows the field to 3-4 lenders, not the 30+ on the panel.
We also structure the loan to preserve your serviceability for the next purchase. If you’re planning to buy a second or third property within 2-3 years, we’ll set up the first loan so the rental income is fully recognised by the next lender, which maximises your borrowing power when you come back for loan #2.
The banks won’t tell you this — they’re assessed on how many loans they write, not on whether the loan structure helps you build a portfolio. A broker who specialises in investment lending plans three properties ahead, not just the one in front of you.
Andy’s been arranging investment loans for Perth buyers since 2000. He knows which lenders move fast, which ones recognise 100% of rental income for serviceability, and which ones let you hold offset accounts at 90% LVR. He also knows how to structure the loan so it doesn’t kill your serviceability when you come back for property #2 or #3.
Investment Loan Guides
Reviewed by
Credit Representative & Mortgage Broker
The information on this page has been reviewed for accuracy by Andy Iriks, a Credit Representative & Mortgage Broker at Wanna Finance. It is general information only.
