Rental yield ignores the loan on purpose, because it measures the property itself. Cash flow cannot, because the loan is usually the single biggest thing standing between the rent and your pocket. That makes financing the most powerful cash-flow lever you have — and the one most worth getting right. Model any change in the cash flow calculator before you commit to it.
The loan is the biggest lever
On a typical geared purchase, loan repayments dwarf every other outgoing combined. A $600,000 loan at 6.5% costs $39,000 a year in interest alone — several times the rates, insurance, management and maintenance put together. Because the base is so large, a small change in the loan moves cash flow more than a big change anywhere else.
Annual interest ≈ Loan balance × Interest rate
Interest rate
The rate is the most direct driver. On a $600,000 loan, every 0.25% is $1,500a year — nearly $29 a week — with no change to the property or the tenant. This is why refinancing to a better rate is the cleanest cash-flow win available: it is pure reduction in an outgoing.
It also cuts both ways. A cash-flow model built at today's rate is a snapshot; a 1% rise on that same loan is $6,000 a year of extra cost. Rate exposure is the single biggest reason to stress-test, covered in building a cash flow buffer.
Interest-only vs principal & interest
This is the structural choice that most changes the weekly figure:
Interest-only (IO)
You pay only interest, so repayments are lower and cash flow stronger. But the debt does not shrink, and IO periods end — when the loan reverts to P&I, repayments jump, often sharply.
Principal & interest (P&I)
You pay interest plus a slice of the loan, so repayments are higher and cash flow tighter. But part of that outgoing builds equity — it is forced saving, not a pure cost.
The trap is treating the IO saving as permanent. A property that is comfortably neutral on interest-only can become sharply negative the day it reverts to P&I. If you rely on IO for holding power, model the reversion now so it is a plan, not a shock.
LVR and how much you borrow
Loan-to-value ratio — the loan as a percentage of the property value — sets the size of the debt, and therefore the size of the repayments. A larger deposit means a smaller loan, smaller repayments and stronger cash flow, at the cost of tying up more of your own capital. It also affects the rate: crossing above 80% LVR usually triggers lenders' mortgage insurance and can attract a higher rate, a double hit to cash flow.
See what is LVR for the mechanics and the LVR calculator to check where a purchase sits.
Loan term
A longer term spreads principal repayment over more years, so each P&I repayment is smaller and cash flow eases — but you pay more interest across the life of the loan. A shorter term does the reverse: tighter cash flow now, less interest overall. Term is a quieter lever than rate or structure, but it is a genuine dial when cash flow is the priority.
Offset and redraw
An offset account reduces the balance interest is charged on without permanently repaying the loan. Cash parked in the offset — a buffer, or rent between bills — quietly lowers interest and lifts cash flow, while staying available if you need it. It is one of the few ways to improve cash flow and preserve flexibility at the same time, which is why it pairs naturally with holding a buffer.
Putting it together
The loan gives you several dials, and they interact. In rough order of cash-flow impact:
- Rate — the biggest single number; refinancing is the cleanest win.
- IO vs P&I — the largest structural swing, but watch the reversion.
- LVR — sets the debt size and can tip you into a higher rate and LMI.
- Term — a gentler dial trading interest cost for weekly relief.
- Offset — improves cash flow while keeping the money accessible.
None of these change the property's yield — they change your position in it. That is the whole distinction between the two pillars.
Try the calculators