Paying down your mortgage faster reduces the total interest you pay and builds usable equity sooner.
For rentvesting clients in the ACT, this matters because the faster you repay the loan on your investment property, the sooner you can access equity to either upgrade your rental lifestyle, purchase the home you actually want to live in, or add a second property to your portfolio. The method you choose depends on whether your income is steady or variable, whether you hold one property or several, and how much flexibility you need to preserve along the way.
Should You Increase Repayments on a Variable or Fixed Rate Loan?
Variable rate loans let you increase repayments without penalty, while fixed rate loans often restrict additional payments to a yearly cap.
If you hold a variable rate investment loan and your income is reliable, lifting your repayment by even a modest amount each fortnight or month will cut years from the term. Consider a buyer who owns an investment property in regional New South Wales and rents in Canberra's inner north. Their loan sits at $450,000. At current variable rates, adding $200 per fortnight to the scheduled repayment could reduce the loan term by several years and save tens of thousands in interest, depending on rate movements over the life of the loan. The savings aren't hypothetical once the loan is paid down and the interest component drops.
Fixed rate loans cap additional repayments, typically between $10,000 and $30,000 per year depending on the lender. If you're earning above your usual income in a given year or receive a bonus, you can use that cap fully without triggering break costs. Once the fixed period ends, the loan typically reverts to variable, at which point you can increase repayments without restriction.
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How an Offset Account Reduces Interest Without Locking Funds Away
An offset account linked to your home loan reduces the interest charged each day based on the balance you hold in that account.
For investment loans, offset accounts are uncommon because most lenders either don't offer them on investor products or price them with a rate loading that cancels out the benefit. Where they are available, they suit buyers who need liquidity. Funds in the offset remain accessible, so if your investment property requires urgent repairs or you face a vacancy period, you can draw on that balance without reapplying for credit.
If your lender doesn't offer an offset on investment loans, the alternative is to make additional repayments into a redraw facility. This achieves a similar interest saving, but accessing those funds later may require a formal redraw request and, depending on your lender, a processing time of several days. For owner-occupied loans, offset accounts are standard and remain the most flexible option for buyers planning to transition from rentvesting to owner-occupier status in the medium term.
Does a Split Loan Structure Let You Pay Down Principal Faster?
A split loan divides your borrowing between fixed and variable portions, letting you direct extra repayments to the variable portion while holding rate certainty on the fixed portion.
This structure works for rentvesting clients who want to pay down their loan aggressively but don't want full exposure to rate rises. In a scenario where a buyer holds a $500,000 loan split 50/50 between fixed and variable, they can increase repayments on the $250,000 variable portion without restriction. The fixed portion remains stable, which helps with budgeting if rental income fluctuates or if they're carrying negative gearing costs. Over time, as the variable portion reduces, the fixed portion represents a smaller share of the total debt, and the buyer can choose not to refix once that term ends.
Split loans also suit buyers planning to refinance in the near term. If you're approaching the end of a fixed period and rates have dropped, you can refinance the variable portion immediately and let the fixed portion expire naturally. This avoids break costs while still capturing a lower rate on part of your borrowing. For clients building a portfolio, split loans let you structure each property differently depending on whether you're prioritising repayment speed, cash flow, or tax deductions.
Switching From Interest-Only to Principal and Interest Repayments
Interest-only loans defer principal repayments for a set period, typically between one and five years, after which the loan reverts to principal and interest.
Many rentvesting clients start with an interest-only structure to maximise cash flow and tax deductions in the early years. Once income rises or the property becomes positively geared, switching to principal and interest lets you start reducing the loan balance. The shift increases your repayment, but it also builds equity that can be accessed later for a deposit on a second property or to fund the transition to owner-occupier status.
In our experience, clients who switch early, even while the loan is still negatively geared, often find the increased repayment manageable once they account for rental income and tax offsets. The earlier you begin paying down principal, the less interest compounds over the remaining term. If you're unsure whether your cash flow can sustain the higher repayment, a loan health check will show you the difference between your current structure and a principal and interest scenario based on your actual rental income and deductible expenses.
Refinancing to a Lower Rate and Maintaining the Same Repayment
Refinancing to a lower interest rate reduces your minimum repayment, but if you maintain your original repayment amount, the difference goes directly to principal.
This approach requires no change to your budget and accelerates repayment automatically. Consider a buyer who refinanced their ACT investment property loan from 6.2% to 5.8%. Their minimum repayment dropped by $120 per month, but they kept paying the original amount. Over the remaining 25-year term, that $120 per month cuts several years from the loan and reduces total interest by a significant margin. If you're considering investment loan refinancing, ask your broker to calculate the repayment at both your current and proposed rate, then structure the new loan with the higher repayment as your ongoing commitment.
Refinancing also creates an opportunity to consolidate debt or remove lenders mortgage insurance if your equity position has improved. For clients who purchased in Canberra or Queanbeyan several years ago, property values have risen, which means your loan to value ratio may now sit below 80%. Refinancing lets you access that equity without triggering LMI on the new loan, and you can direct the released equity toward paying down higher-cost debt or funding additional property purchases.
How Rentvesting Clients in the ACT Can Use Equity to Accelerate Portfolio Growth
Once your investment property loan is partially paid down, the equity you've built can be used as a deposit for a second property or to fund your transition to owner-occupier status.
ACT buyers who purchased investment properties in regional areas or interstate often find that paying down the loan faster gives them access to usable equity sooner than they expected. If your goal is to buy the home you want to live in, that equity can cover the deposit and avoid the need to sell your investment property. If your goal is to grow your portfolio, equity release lets you purchase a second property without saving a new deposit from scratch.
The timing matters. Equity is only usable once your loan to value ratio drops to a level that lenders will accept for further lending, typically 80% or lower to avoid LMI. Paying down your loan faster moves you through that threshold sooner, which opens up options that wouldn't otherwise be available for several more years. For rentvesting clients planning to transition to owner-occupier status, paying off the investment loan faster also improves your borrowing capacity because the outstanding debt reduces and serviceability improves.
Call one of our team or book an appointment at a time that works for you. We'll review your current loan structure, calculate how much faster you could repay using your actual income and expenses, and show you which lenders in the ACT offer the features that match your repayment strategy.
Frequently Asked Questions
Can I make extra repayments on a fixed rate home loan?
Most fixed rate loans allow additional repayments up to a yearly cap, typically between $10,000 and $30,000 depending on the lender. Exceeding that cap may trigger break costs. Once the fixed period ends, the loan usually reverts to variable and you can increase repayments without restriction.
Does an offset account work on an investment loan?
Offset accounts are less common on investment loans and often come with a higher interest rate that reduces the benefit. Where available, they suit buyers who need liquidity for property expenses or vacancies. For most investors, a redraw facility on a variable loan achieves a similar interest saving.
Should I switch from interest-only to principal and interest to pay off my loan faster?
Switching to principal and interest starts reducing your loan balance and builds usable equity. The repayment increases, but the earlier you switch, the less interest compounds over the remaining term. This works well once your income rises or the property becomes positively geared.
How does refinancing to a lower rate help me pay off my loan faster?
Refinancing to a lower rate reduces your minimum repayment. If you maintain your original repayment amount, the difference goes directly to principal, cutting years from the loan term without changing your budget.
Can I use equity from my investment property to buy the home I want to live in?
Yes. Once your loan to value ratio drops to 80% or lower, you can access equity as a deposit for an owner-occupied purchase without selling your investment property. Paying down your loan faster moves you through that threshold sooner.
