Variable Investment Loans and Budget Changes

A variable rate investment loan gives you flexibility to make extra repayments and adjust your borrowing as your financial situation changes.

If you're a single-income earner considering investment property finance, the 2026-27 Federal Budget introduced changes to negative gearing and capital gains tax that apply to established residential properties purchased from 13 May 2026 onwards. These reforms take effect from 1 July 2027, but they shape how you should think about loan structure, repayment type, and property selection right now.

Why Variable Rates Suit Investors After Budget Night

Variable rates let you make unlimited extra repayments without penalty and access redraw facilities if you need funds back. From 1 July 2027, losses on established investment properties bought after Budget night can only be offset against rental income or capital gains from residential property, not your salary. If your rental income increases or you want to accelerate repayments to reduce interest costs, a variable loan gives you that option without break fees.

Consider a single-income buyer who purchases a new apartment in Mount Waverley under a house and land package arrangement. Because new builds are exempt from the negative gearing changes and retain access to the 50% CGT discount, this buyer can still claim the full rental loss against their wage income. A variable rate loan means they can make lump sum repayments when they receive a tax refund or bonus, reducing the loan balance faster and building equity without restriction.

Interest-Only Repayments on a Variable Loan

Interest-only repayments reduce your monthly outlay by deferring principal repayments for an agreed period, typically up to five years. This structure can help manage cash flow when rental income doesn't cover all holding costs, but it also means your loan balance stays unchanged during the interest-only term.

Under the new rules, if you buy an established property from 13 May 2026 onwards, rental losses can only be claimed against property income once the reforms begin. Interest-only periods may still be useful to manage cash flow in the early years, but the tax benefit of a larger loss is no longer available against other income. If you're buying a new build, the existing arrangements still apply, so interest-only can remain a valid cash flow tool while you claim the full deduction.

When choosing between interest-only and principal-and-interest from the start, think about your income stability and whether you want to build equity immediately or preserve cash for other investments. A variable loan lets you switch between repayment types during the loan term, subject to lender approval, so you're not locked in.

Borrowing Capacity and Deposit Requirements

Lenders assess investment loan applications using rental income at a discounted rate, often 80% of expected rent to account for vacancy and maintenance costs. Your borrowing capacity depends on your salary, existing debts, living expenses, and the net rental income after that discount is applied.

Single-income borrowers typically need a deposit of at least 10% plus costs to avoid Lenders Mortgage Insurance, though some lenders will accept a lower deposit with LMI included. Stamp duty in Victoria is calculated on the full purchase price and is not added to the loan in most cases, so you need to factor that into your upfront costs. Claimable expenses such as loan interest, property management fees, council rates, and depreciation can reduce your taxable rental income, but from 1 July 2027, net losses on established properties bought after Budget night are quarantined to property income only.

How the New CGT Indexation Method Works

From 1 July 2027, the 50% CGT discount is replaced with cost base indexation for gains that arise after that date. Indexation adjusts your purchase price for inflation, so you only pay tax on the real gain rather than the nominal increase. A minimum 30% tax applies to capital gains, though this doesn't affect main residence exemptions or gains earned before 1 July 2027.

If you buy a new build, you can choose between the old 50% discount method and the new indexation method when you eventually sell, giving you flexibility to pick whichever produces a lower tax outcome. Established properties bought after Budget night don't have that choice and will use indexation only. This distinction makes new builds more attractive from both a negative gearing and CGT perspective if you're buying after 13 May 2026.

Refinancing an Existing Investment Loan to a Variable Rate

If you already own an investment property purchased before Budget night, your existing negative gearing and CGT arrangements are grandfathered. Refinancing to a variable rate can reduce your interest costs if your current rate is above market or give you access to features like offset accounts and flexible repayments that weren't available when you first borrowed.

An offset account linked to a variable investment loan reduces the interest you pay by offsetting your savings balance against the loan principal. Because investment loan interest is tax-deductible, you want to maximise that deduction while minimising the actual interest cost over time. Keeping your savings in offset rather than paying down the loan directly preserves the deductible debt and gives you liquidity if you need it.

Refinancing also lets you release equity from your existing property to fund a deposit on a second investment property, a strategy covered in detail in our guide on expanding your property portfolio. Equity release uses the increased value of your current property as security, meaning you don't need to save a new deposit from your salary.

Structuring Loans Across Multiple Properties

If you plan to build a portfolio over time, keep each property loan in a separate split or facility. This makes it easier to track deductible interest for each property and avoids cross-contamination if you later use equity for non-investment purposes. A variable rate loan with multiple splits lets you allocate different amounts to different properties while managing them under a single loan account.

Single-income earners often start with one investment property and plan to add more as equity builds. The new negative gearing rules mean you'll want to prioritise new builds if you're buying after Budget night and still want to claim losses against your salary. Established properties remain viable if you're focused on long-term capital growth and can manage cash flow without relying on full negative gearing benefits from day one.

Rate Discounts and Loan Features to Compare

Lenders offer different rate discounts depending on your loan amount, deposit size, and whether the loan is for owner-occupied or investment purposes. Investment rates are typically higher than owner-occupied rates because lenders view them as higher risk, but competition among lenders means discounts are available if you meet their criteria.

Variable investment loans often include features like redraw, offset, and the ability to make extra repayments. Not all lenders offer offset accounts on investment loans, and those that do may charge a higher rate or annual fee. Compare the interest cost of a loan with offset against one without, factoring in your expected savings balance, to see if the feature is worth the price.

A mortgage broker can compare loan products across multiple lenders and identify which features align with your goals, whether that's flexible repayments, low ongoing fees, or the ability to capitalise costs during construction if you're buying a new build.

Call one of our team or book an appointment at a time that works for you. We'll walk through your income, deposit, and property plans to structure a variable investment loan that fits your situation and makes sense under the new rules.

Frequently Asked Questions