A variable rate investment loan is only as good as the terms you choose around it. Pick the wrong repayment type or ignore the tax rules, and the loan works for the lender instead of you.
If you're a Southport investor weighing up a variable rate, these are the five mistakes we see cost people the most. Our investment loans team fights for your outcome, not the lender's.
Does Interest Only Make an Investment Loan Cheaper?
No. Interest only lowers your repayment for a set period, but the loan balance doesn't fall, and you still owe the full amount when the period ends.
Consider an investor with a $500,000 loan over 30 years. Using an illustrative rate of 6.75% p.a., interest-only repayments come to about $2,812 a month. Principal and interest over the full 30 years would be about $3,243 a month. The interest-only option looks like a $430 monthly saving.
But when a five-year interest-only period ends, the loan reverts to principal and interest over the remaining 25 years. At the same illustrative rate, repayments jump to about $3,455 a month, which is higher than if the investor had paid principal and interest from day one. The investor in this scenario planned for it. They kept the extra cash flow in a savings buffer during the interest-only years and reviewed the loan before it expired. The step-up was a number they'd already budgeted for, not a shock.
The trade-off is plain. Interest only improves cash flow now and costs you more per month later. It suits a clear plan, not a hope that things work out.
Will Interest Only Increase Your Investment Loan Amount?
No. Lenders assess interest-only loans on principal and interest repayments over the remaining term, so interest only does not lift your borrowing capacity.
Under APRA's guidance, a 30-year loan with a five-year interest-only period is assessed over the remaining 25 years. That means the maximum loan can be lower than on a standard principal and interest loan.
Banks must also test your ability to repay at a rate at least 3 percentage points above the loan rate. Lenders typically count no more than 80% of expected rent, to allow for vacancy. Your borrowing capacity is therefore usually smaller than the rent figure on a property appraisal suggests. Non-bank lenders sit outside some of these APRA rules, but each lender has its own policy. Work out your number before you fall in love with a property in Southport, not after.
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Can Redraws and Equity Release Wreck Your Tax Deductions?
Yes. Interest is deductible based on how the borrowed money is used, so mixing personal spending into an investment loan can reduce the deductible portion.
The ATO's ruling TR 2000/2 treats each redraw as a separate borrowing. If you redraw money from an investment loan to fund a holiday, the interest on that part is private and not deductible. Borrowing against the equity in your investment property doesn't make the interest deductible either. What you spend the money on decides that.
The cleaner path is to keep investment borrowing separate from personal borrowing. Talk to your accountant about how your loan is structured, because the tax outcome depends on your circumstances.
Why You Can't Rely on Negative Gearing to Cover the Gap
Negative gearing rules depend on when you bought and what you bought. Don't build a plan that needs a tax refund to make the numbers work.
For investment properties held at 7:30pm AEST on 12 May 2026, losses stay deductible against other income, including salary, until the property is sold. Eligible new builds acquired after that date can also keep this treatment. From the 2027-28 income year, net rental losses on established residential properties bought after that time can only be used against other residential property income. Interest itself is still deductible. What changes is how a loss can be used.
If you buy an established property now, your loan needs to be affordable from your own cash flow. Speak to your accountant before you commit, as tax outcomes are never certain.
Leaving Your Variable Rate Untouched After Settlement
A variable rate can move up or down at your lender's discretion, so a loan that suited you at settlement may not suit you a few years on.
That's the main risk of a variable rate. Whether you can add extra repayments or use an offset account depends on the lender and product, so check before you sign.
Rates and discounts differ between lenders and can change over time, so it can pay to compare. A loan health check shows whether your rate and features still suit you. If they don't, refinancing may be worth a look, though discharge fees and other costs can apply. Weigh those against any saving before you move.
Our Southport brokers can compare lenders across Australia for you, and we're upfront about the costs and trade-offs on every option.
If you're buying your next property or questioning your current loan, call one of our team or book an appointment at a time that works for you. We'll check the numbers, tell you straight, and fight for the loan that fits your plan.
Frequently Asked Questions
Does interest only increase how much I can borrow for an investment property?
No. Lenders assess interest-only loans on principal and interest repayments over the remaining term, so borrowing capacity is usually lower, not higher. Each lender also applies its own policy.
What happens when an interest-only period ends?
The loan reverts to principal and interest repayments over a shorter remaining term, so repayments rise. On an illustrative $500,000 loan at 6.75% p.a., a five-year interest-only period followed by 25 years of principal and interest means about $3,455 a month.
Is the interest on my investment loan always tax deductible?
Not always. Deductibility depends on how the borrowed funds are used, and redraws for private spending are not deductible. Ask your accountant about your situation.
Do lenders count all of the rent on an investment property?
Generally not. APRA's view is that prudent lenders count no more than 80% of expected rent to allow for vacancy. Each lender sets its own policy on rental evidence.
