Lower interest rates improve an investment property’s cash flow almost dollar for dollar: on a $600,000 interest-only investment loan, every 0.25% cut saves $1,500 a year in interest, and a full 1% saves $6,000. Rates are moving the other way in 2026, with the cash rate up four times to 4.60%, so for most investors the quickest way to a lower rate today is to refinance or negotiate rather than wait for the Reserve Bank. Here is what a lower rate is worth, and how to make the most of it.
How a lower rate flows through to cash flow
For an investor, interest is usually the biggest single cost. When your rate falls, the saving goes straight to your weekly cash flow, because rent, rates, insurance and management costs stay the same.
| Rate change on a $600,000 loan | Interest-only saving | Principal and interest repayment change |
|---|---|---|
| 0.25% lower | $1,500 a year ($125 a month) | About $100 a month lower |
| 0.50% lower | $3,000 a year ($250 a month) | About $198 a month lower |
| 1.00% lower | $6,000 a year ($500 a month) | About $393 a month lower |
| From 6.89% average to 5.94% lowest | $5,700 a year ($475 a month) | About $373 a month lower |
Our calculations over a 30-year term, excluding fees. The 6.89% average investor variable rate and 5.94% lowest advertised investor rate are from Canstar, as at 2 October 2026.
Worked example: one property, four rates
Take a $750,000 property bought with a $600,000 interest-only loan. It rents for $650 a week ($33,800 a year) and costs $8,500 a year to run.
| Interest rate | Annual interest | Pre-tax cash flow | Weekly top-up |
|---|---|---|---|
| 6.89% | $41,340 | -$16,040 | $308 |
| 6.64% | $39,840 | -$14,540 | $280 |
| 6.39% | $38,340 | -$13,040 | $251 |
| 5.94% | $35,640 | -$10,340 | $199 |
Our calculations, before tax and depreciation. To break even before tax at 6.89%, this property would need rent of about $958 a week, so most capital city investments stay negatively geared even after a cut. What a lower rate does is shrink the weekly shortfall you have to fund.
That matters more for properties bought from now on. Under the changes passed in June 2026, losses on established residential property bought after 7.30 pm AEST on 12 May 2026 can only be offset against residential property income from 1 July 2027, not against your salary. A lower rate is one of the few levers that reduces those losses directly. See interest rates and rental yield for how to compare rent with your loan rate.
Where the RBA cash rate is heading
The Reserve Bank raised the cash rate to 4.60% on 29 September 2026, its fourth rise this year, and said it would raise rates further if needed to bring inflation down. Commonwealth Bank economists expect cuts to start in the second half of 2027. So a rate cut from the RBA isn’t likely to help cash flow in the near term.
The 2026 rises show the same maths in reverse. One percentage point of increases added about $6,000 a year to the interest on a $600,000 interest-only loan, or about $388 a month to a $600,000 owner-occupier loan on principal and interest, if lenders passed on each rise in full.
How to get a lower rate without waiting for the RBA
- Ask your lender for a better rate. Lenders often discount for existing customers who ask, especially with a competing offer in hand.
- Refinance. The gap between the average and the lowest investor rates is close to a full percentage point. On a $600,000 loan that’s worth around $5,700 a year in interest, before switching costs.
- Get your LVR to 80% or below. Many lenders price investment loans more sharply under 80%, and some again under 70%.
- Choose principal and interest if you can. Interest-only investor rates are usually higher.
- Use an offset account. Cash held in an offset reduces the interest charged without reducing the loan balance, so it improves cash flow while keeping your deductible debt intact.
What to do with the saving
When your rate falls, you can take the saving as extra cash flow, or keep your repayments the same and pay the loan down faster.
On a $600,000 principal and interest loan, if your rate drops from 6.89% to 6.64% and you keep paying $3,948 a month instead of the new $3,848, you’d repay the loan about two years early and save around $69,600 in interest (our calculation). For an investment loan, many investors prefer to put the difference into an offset against their home loan instead, because home loan interest isn’t tax deductible. See our tips on extra repayments.
Frequently asked questions
How much does a 0.25% rate cut save each month?
On a $600,000 loan, a 0.25% cut saves $125 a month on interest-only repayments and about $100 a month on a 30-year principal and interest loan. Scale it up or down with your loan size: on $400,000 it’s about $83 and $67 a month.
Should I keep repayments the same after a rate cut?
If your budget allows, keeping repayments the same is an easy way to pay your loan off faster. On a $600,000 loan, holding repayments steady after a 0.25% cut saves about $69,600 in interest. Investors with a non-deductible home loan often direct the extra to that loan or its offset first.
When does an investment property become positively geared?
When the rent covers the interest and all other running costs. On a $600,000 interest-only loan at 6.89% with $8,500 of other costs, the rent would need to be about $958 a week. Lower rates, a bigger deposit or a higher-yielding property bring that point closer.
Sources
- Reserve Bank of Australia, Monetary Policy Decision, 29 September 2026
- Canstar, Average home loan interest rates, as at 2 October 2026
- Australian Government, Negative Gearing and Capital Gains Tax Reform, Budget 2026-27
- Australian Taxation Office, Interest expenses on rental properties
General information only. It does not consider your objectives, financial situation or needs and is not credit, tax or financial advice.