Unlock the Secrets to Investment Loan Structures

Investment loan structures determine how you pay interest, manage cash flow, and respond to rate changes over the life of your property investment.

The choice between fixed, variable, and split loan arrangements has become more consequential for Bentleigh investors since the negative gearing changes took effect in mid-2026. The structure you select affects not only your monthly repayments but also your ability to make extra payments, access offset facilities, and refinance without penalty. Each option carries different risks and benefits depending on whether you are purchasing an established dwelling or an eligible new build, and whether you expect rental income to cover most of your loan costs or plan to hold the property at a loss.

Variable Rate Investment Loans: Flexibility and Offset Access

A variable rate investment loan adjusts with market conditions and typically offers full offset account access and unlimited extra repayments without penalty.

Consider an investor purchasing a two-bedroom apartment near Centre Road in Bentleigh. With a variable rate loan, the investor links an offset account to the loan and directs rental income into that account each fortnight. The balance in the offset reduces the interest charged daily, which lowers the amount of non-deductible personal funds needed to cover any shortfall between rent and loan costs. If the investor receives a bonus or tax refund, those funds can sit in the offset and reduce interest without affecting the deductibility of the loan itself. Variable rates also allow the investor to make lump-sum repayments or increase regular payments if they choose to pay down the loan faster, though most investors holding under the grandfathered negative gearing rules will prefer to maintain higher debt levels to maximise deductions.

The primary risk with a variable rate is exposure to rate increases. When the Reserve Bank raises the cash rate, lenders typically pass the increase through to variable loans within weeks. An investor who budgeted rental income to cover 80 per cent of the loan cost at a certain rate may find that coverage drops to 70 per cent after a rate rise, requiring more after-tax cash to service the loan each month.

Fixed Rate Investment Loans: Certainty With Reduced Features

A fixed rate investment loan locks your interest rate for a set period, usually between one and five years, and protects you from rate increases during that term.

Fixed rates suit investors who prioritise certainty over flexibility. If you are holding an established dwelling acquired before the May 2026 cut-off and can still offset losses against salary under the grandfathered rules, a fixed rate lets you forecast your annual deduction with precision. You know exactly what interest will be charged each month, which simplifies cash flow planning and tax calculations. However, fixed rate products rarely offer offset accounts, and most lenders impose strict limits on extra repayments, often capping them at $10,000 to $20,000 per year. Exceeding that cap or breaking the fixed term early triggers break costs, which can run into thousands of dollars if market rates have fallen since you locked in.

Fixed rates also constrain your ability to refinance during the fixed period. If a lender releases a more competitive product or you want to consolidate debt, you will either need to pay break costs to exit or wait until the fixed term expires. For investors building a portfolio, this lack of flexibility can delay acquisition of a second property if you need to access equity or restructure loans to improve borrowing capacity.

Split Loan Arrangements: Balancing Risk Across Rate Types

A split loan divides your total borrowing between a fixed portion and a variable portion, allowing you to manage rate risk while retaining some flexibility.

In our experience, a 50-50 split is common, though investors can choose any proportion that suits their risk tolerance. As an example, an investor purchasing a three-bedroom townhouse in Bentleigh's McKinnon Secondary College zone with a loan amount of $800,000 might fix $400,000 at a rate of 6.2 per cent for three years and leave $400,000 on a variable rate currently at 6.5 per cent. The fixed portion provides certainty for half the loan, so even if variable rates climb to 7 per cent or higher, the investor's overall rate increase is moderated. The variable portion retains full offset access, so rental income and any surplus cash can sit in the offset account and reduce the interest charged on that half of the loan. If rates fall, the variable portion benefits immediately, and the investor is not locked entirely into a higher fixed rate.

Split loans do require more administrative attention. You will receive statements for two loan accounts, and if you are paying interest only on one portion and principal and interest on the other, the cash flow becomes more complex. Lenders also apply break costs only to the fixed portion if you refinance early, so you retain the option to move the variable portion to another lender without penalty, though this can fragment your debt structure further.

Interest Only Versus Principal and Interest Repayments

Interest only repayments mean you pay only the interest charged each period, leaving the loan balance unchanged, while principal and interest repayments reduce the loan balance over time.

Most property investors holding under the grandfathered negative gearing rules choose interest only repayments for the first one to five years. This approach maximises the interest deduction and keeps monthly costs lower, freeing up cash to service other debt or save for a deposit on a second property. Lenders typically allow interest only periods of up to five years on investment loans, after which the loan reverts to principal and interest unless you apply for an extension. Obtaining an extension usually requires evidence that the property remains tenanted and that your income can service the higher principal and interest repayments if required.

For investors purchasing eligible new builds after the May 2026 announcement, the decision is less clear-cut. Because new builds retain access to negative gearing, interest only repayments still maximise tax deductions. However, the capital gains tax changes from July 2027 mean you may prefer to pay down the loan faster to reduce the taxable gain when you sell, particularly if you do not elect the retained 50 per cent discount available for new builds. An investor holding an established dwelling acquired after the cut-off and subject to quarantined losses may also prefer principal and interest repayments from the outset, since the interest deduction is quarantined and cannot offset salary, reducing the tax benefit of maximising debt.

How Rate Discounts and Loan Features Vary by Lender

Rate discounts and included features differ significantly across lenders, and the advertised rate rarely reflects the rate an investor will actually receive.

Lenders assess investment loan applications using serviceability buffers set by APRA and apply rate discounts based on the loan amount, the loan to value ratio, and whether the applicant holds other products with the lender. An investor borrowing 80 per cent of the property value on an established Bentleigh apartment may receive a discount of 0.8 to 1.0 per cent off the lender's standard variable rate, while an investor borrowing 90 per cent and paying Lenders Mortgage Insurance may receive a smaller discount or none at all. Some lenders also reserve their most competitive discounts for loans above a certain threshold, commonly $500,000 or $750,000, which can make a meaningful difference to monthly costs.

Features such as offset accounts, redraw facilities, and the ability to split the loan are not universal. Some lenders offer full offset on variable investment loans at no extra cost, while others charge a package fee of $300 to $400 per year to access offset and discounted rates together. Fixed rate investment loans rarely include offset, though a handful of lenders offer partial offset where the balance in the offset account reduces the interest charged by 40 to 60 per cent of the offset balance rather than dollar-for-dollar. Knowing which lenders offer which features and at what cost is central to structuring the loan correctly from the outset.

Refinancing Investment Loans to Access Equity or Improve Rates

Refinancing an investment loan involves switching to a new lender or restructuring your existing loan to access equity, reduce your rate, or consolidate debt.

Bentleigh has seen consistent capital growth over the past decade, and many investors who purchased in the area now hold significant equity in their properties. If you bought a townhouse in 2020 and the property has increased in value, you may be able to refinance to release equity and use those funds as a deposit on a second investment property. Lenders will assess the new loan amount using current serviceability rules, including the APRA buffer and the debt-to-income cap introduced in February 2026, so accessing equity is not automatic even if the property value supports it. Investors should also consider whether releasing equity will push the loan to value ratio above 80 per cent and trigger Lenders Mortgage Insurance, and whether the additional debt remains serviceable if interest rates rise further or rental income drops during a vacancy period.

Refinancing can also improve your rate if your current loan is on an uncompetitive variable rate or if your fixed term has expired and rolled to a higher revert rate. However, investors holding fixed rate loans or split loans with a fixed portion will need to weigh the break costs against the long-term saving from a lower rate. A loan health check can clarify whether refinancing makes sense in your situation, particularly if the loan structure no longer aligns with your tax position under the new rules.

Structuring Loans for Portfolio Growth Under New Tax Rules

Investors building a portfolio now face different structuring decisions depending on whether each property qualifies as an eligible new build or an established dwelling.

The quarantining of losses on established dwellings acquired after May 2026 means that investors can only offset those losses against other residential rental income or carry them forward. If you already own one investment property that generates a small positive cash flow, purchasing a second established dwelling at a loss allows you to offset the loss from the second property against the income from the first, reducing your overall tax on rental income. However, you cannot offset that loss against your salary. This changes the cash flow equation and may make principal and interest repayments more attractive than interest only, since the tax benefit of maximising interest is reduced once losses are quarantined.

For new builds, the ability to offset losses against salary remains intact, so the traditional interest only, high leverage approach still works. An investor purchasing a newly constructed apartment in one of the new developments near Patterson station could borrow 90 per cent of the purchase price, pay interest only, and offset the resulting loss against employment income. That same investor would structure the loan differently if purchasing an established villa unit on the other side of Centre Road, likely choosing a lower loan to value ratio and principal and interest repayments to reduce the quarantined loss and build equity faster.

Call one of our team or book an appointment at a time that works for you to discuss which loan structure aligns with your property investment strategy and tax position.

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