Extra repayments on a variable rate investment loan make sense once you hold a cash buffer and have no higher-priority debt. Before that point, spare cash often does more work staying accessible.
As a rentvesting broker, we see Adelaide investors who rent where they want to live and own elsewhere. They tend to carry both rent and a loan. That makes every spare dollar a decision, so it helps to know where it should go first.
Should You Make Extra Repayments on an Investment Loan?
Extra repayments are worth making once you have a cash buffer for vacancies and repairs. They reduce your loan balance, so you are generally charged less interest from when the lender applies the payment.
The key question is access. Money paid into the loan is only available again if your loan has a redraw facility, and redraw terms vary between lenders. Money held in an offset account lowers your interest in a similar way but stays in your name as cash. Our page on offset accounts on investment loans covers how the two compare.
The main trade-off is flexibility. Cash in the loan is harder to use in an emergency, and redraw access and terms depend on the lender.
How Extra Repayments Work on a Variable Rate
On a variable rate loan, extra repayments reduce the balance that interest is charged on. A lower balance means a lower interest bill each month.
On a fixed rate loan, extra repayment limits are set by the lender and the product. Whether your variable loan accepts extra repayments without a fee also depends on the lender, so check your loan terms before you pay in a large sum.
Extra Repayments in Action: A $20,000 Example
An illustrative example shows how this works. Consider an Adelaide investor with a $500,000 variable investment loan at 6.75% p.a., which is an illustrative rate only. They receive a $20,000 bonus and are weighing up their options.
At that rate, interest on the full $500,000 is about $2,812 in the first month. If they put the $20,000 straight into the loan, the balance drops to $480,000. Monthly interest falls by about $112, or roughly $1,350 over a year at the same rate.
They decide against paying it into the loan. They have no cash buffer for a vacancy or a hot water system failing, so they keep the $20,000 in an offset account linked to the loan. The interest saving is the same, because the offset reduces the balance that interest is charged on. The cash also stays available.
The outcome is a lower interest bill and a buffer they can reach. The trade-off is that an offset account can carry fees or a higher rate than a basic loan, depending on the lender. That is worth checking before they commit.
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Do Extra Repayments Change Your Tax Deductions?
Yes. Extra repayments reduce your interest, and interest on a rental property loan is generally deductible, so your deduction falls along with it. Speak to your accountant about how this affects your own return.
The saving is still real, because you keep the part of the interest you no longer pay. The deduction only gives back part of each interest dollar, depending on your circumstances. Paying less interest is not a loss.
Only the interest portion of a repayment is deductible. The principal portion is repayment of capital and is not. That applies whether you use a principal and interest loan or an interest-only investment loan. Interest-only keeps your repayments lower but does not reduce the balance, so extra repayments are the main way to reduce the loan during that period.
Negative gearing rules are also changing. From the 2027-28 income year, net rental losses on established residential properties acquired after 7:30pm AEST on 12 May 2026 can only be used against other residential property income. Our page on negative gearing for rentvestors explains how this may affect your plans.
Redraw Withdrawals and Deductibility
If you redraw extra repayments for personal use, the interest on that redrawn amount is not deductible. The ATO treats each redraw as a separate borrowing, and deductibility depends on what the money is used for.
Say you paid $20,000 into an investment loan and later redrew $10,000 for a holiday. The interest on that $10,000 is not deductible, even though the loan is secured against a rental property. Mixing redraws with rental-related spending can also make your records harder to keep. Ask your accountant to confirm how it applies to you.
An offset account keeps the cash separate from the loan, so it is not a redraw. Ask your accountant how withdrawals from an offset account are treated for tax.
When to Put Spare Cash Somewhere Other Than the Loan
Spare cash should go elsewhere when you have no buffer, carry higher-interest debt, or plan to buy again soon. In those cases, locking cash into the loan can leave you short.
If you plan to buy again, equity in your first property can help. Our page on equity release on investment properties looks at how that works. A lower balance can mean more usable equity, but any release is subject to lender approval, and offset balances do not reduce your loan amount when lenders calculate LVR.
Your repayment commitments also affect how much you can borrow. Lenders assess new borrowers at a rate at least 3.0 percentage points above the loan rate, and they count only part of your expected rent. Before you commit to extra repayments, run your own numbers through our mortgage repayment calculator.
Choosing Between a Variable Loan and a Split Structure
A split loan puts part of your debt on a variable rate and part on a fixed rate. It can suit an investor who wants repayment certainty on one portion and flexibility on the other.
The trade-off is that features such as extra repayments, redraw and offset may differ between the fixed and variable portions, depending on the lender. Read about split loans for rentvesting to see how the structure works before you decide where extra money should go.
Call one of our team or book an appointment at a time that works for you. We will review your current investment loan, check which features it offers, and map out where your spare cash should go. You can book an appointment online in a few minutes.
Frequently Asked Questions
Should I make extra repayments on my variable investment loan?
Extra repayments make sense once you hold a cash buffer for vacancies and repairs. They lower your balance and reduce the interest you are charged, but cash paid into the loan may be harder to access.
Do extra repayments reduce my tax deductions?
They reduce your interest, so the interest deduction is lower as well. You still keep the part of the interest you no longer pay. Speak to your accountant about your own situation.
Is redraw interest deductible on an investment loan?
Interest on redrawn funds is deductible only to the extent the money is used for an income-producing purpose. A redraw used for personal spending is not deductible. Confirm the details with your accountant.
Is an offset account or extra repayments the better choice?
An offset account lowers interest in a similar way while keeping your cash accessible. Check the fees and rate on the offset product, because they vary by lender.
