When you're buying an investment property or looking to refinance your existing rental property loan, understanding your investment loan options is crucial. Fixed rate loans offer specific features that can work well for property investors, particularly when you're planning your property investment strategy around predictable costs and long-term portfolio growth.
Let's explore the key features of fixed rate investment loans and how they might fit into your approach to building wealth through property in the Cannon Hill area and beyond.
What Makes Fixed Rate Investment Loans Different?
A fixed interest rate means your investment loan interest rate stays the same for a set period, typically between one to five years. Unlike a variable interest rate that can move up or down with market conditions, your repayments remain consistent throughout the fixed period.
For property investors, this certainty can make calculating investment loan repayments and managing cash flow more straightforward. You'll know exactly what your loan repayments will be, which helps when you need rental income to cover your expenses and maximise tax deductions.
Key Features of Fixed Rate Investment Loans
Rate Stability During the Fixed Period
The primary feature is rate protection. When you lock in a fixed rate, you won't be affected by interest rate increases during that time. This can be particularly valuable if investor interest rates are low when you apply, and you want to secure that rate for several years.
However, it's worth noting that if rates fall, you won't benefit from those decreases either. Your investment loan amount will continue accruing interest at the fixed rate you've locked in.
Interest Only Options
Many fixed rate investment loan products allow you to choose interest only repayments. An interest only investment loan means you only pay the interest portion each month, not the principal. This can improve your immediate cash flow and potentially provide negative gearing benefits, as your interest repayments are generally claimable expenses against your rental income.
Alternatively, you can opt for principal and interest repayments, which reduce your loan amount over time and build equity faster.
Limited Additional Repayment Flexibility
Most fixed rate loans have restrictions on making extra repayments. Lenders typically allow a certain amount of additional repayments per year (often around $10,000 to $30,000) before charging break fees. This differs from variable rate loans, which usually allow unlimited additional repayments.
If your property investment strategy involves using surplus rental income or passive income from other sources to pay down debt quickly, this limitation is worth considering.
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Book a chat with a Finance & Mortgage Broker at LBK Lending today.
Break Costs Can Apply
If you need to exit your fixed rate loan early - whether to sell the property, conduct an investment loan refinance, or switch to a different loan structure - you may face break costs. These can be substantial if interest rates have fallen since you fixed your rate.
Calculating these potential costs is important when planning your investment property finance approach and considering your hold period for the property.
Access to Rate Discounts
Many lenders offer interest rate discounts based on factors like your loan to value ratio (LVR), the investment loan amount, and your overall relationship with them. A lower LVR (meaning a larger investor deposit or more equity in the property) often attracts better investor interest rates.
Working with a mortgage broker gives you access to investment loan options from banks and lenders across Australia, helping you compare investment property rates and find competitive options.
Planning Your Investment Loan Application
When considering a fixed rate for your property investor loan, think about:
- Your hold period: How long do you plan to keep this investment property?
- Cash flow needs: Do you need the certainty of fixed repayments to manage your budget?
- Market outlook: What's happening with investment loan interest rates currently?
- Other expenses: Don't forget about stamp duty, Lenders Mortgage Insurance (LMI) if your LVR is above 80%, body corporate fees if applicable, and vacancy rate considerations
- Tax strategy: How do the investment loan features align with your goals to maximise tax deductions and achieve the tax benefits available to investors?
Combining Fixed and Variable Rates
Some property investors split their loan amount between fixed and variable portions. This approach gives you some rate stability while maintaining flexibility for additional repayments on the variable portion. It can be an effective middle ground, especially when building a property portfolio or planning to leverage equity for future purchases.
Your Next Steps for Investment Property Finance
Every investor's situation is different. Your borrowing capacity, existing portfolio, income from employment or business, and your broader financial freedom goals all influence which investment loan products and investment loan benefits will work for you.
The various investment loan features available - from interest only options to different fixed rate periods - can be structured to align with your property investment strategy. Whether you're purchasing your first rental property or expanding your holdings for portfolio growth, understanding these features helps you make informed decisions.
At LBK Lending, we work with clients throughout Cannon Hill and across Brisbane to assess investment loan options tailored to individual circumstances. We can help you understand your borrowing capacity, compare investment loan products, and structure your investment property finance for your goals.
If you're considering an investment loan application, looking at refinancing your existing rental property loan, or want to explore how to leverage equity from your current properties, we're here to help. Our team has access to a wide range of lenders and can guide you through the process of securing investment property finance that works for your situation.
Call one of our team or book an appointment at a time that works for you to discuss your investment property finance needs and explore your options.
