Investment Loans: Variable Rate Fees and Costs to Know

For property investors in Daglish looking to build wealth through real estate, understanding the fees and costs associated with variable rate investment loans is essential. While the variable interest rate itself is a significant factor, the additional expenses can substantially impact your property investment strategy and overall returns.

Understanding Variable Rate Investment Loans

A variable rate investment loan features an interest rate that fluctuates based on market conditions and lender decisions. Unlike fixed rate loans, variable rate products offer flexibility and often provide access to features that can benefit property investors seeking portfolio growth.

When you access investment loan options from banks and lenders across Australia, you'll find that variable rate loans typically come with more investment loan features than their fixed rate counterparts. These may include offset accounts, redraw facilities, and the ability to make additional repayments without penalty.

Key Fees Associated with Variable Rate Investment Loans

Understanding the full cost structure of your investment property finance is crucial for calculating investment loan repayments accurately and maximising tax deductions. Here are the primary fees you should be aware of:

Application and Establishment Fees

Most lenders charge an application fee when you submit your investment loan application. This fee typically ranges from $0 to $1,000 and covers the administrative costs of processing your application. Some lenders may waive this fee during promotional periods or for borrowers with strong financial profiles.

Establishment fees, also called setup fees, cover the cost of setting up your loan and can range from $300 to $800. These are often claimable expenses for tax purposes, so keep detailed records for your accountant.

Valuation Fees

Before approving your property investor loan, lenders require a professional valuation of the investment property. Valuation fees typically cost between $200 and $600, depending on the property's location and value. This cost ensures the property's market value supports the investment loan amount you're requesting.

Lenders Mortgage Insurance (LMI)

When your loan to value ratio (LVR) exceeds 80%, lenders typically require Lenders Mortgage Insurance. This protects the lender if you default on your loan. LMI costs can range from a few thousand to tens of thousands of dollars, depending on your investor deposit and loan amount.

While LMI represents a significant upfront cost, it enables property investors to enter the market sooner or leverage equity for portfolio growth. Some professionals may qualify for LMI waivers based on their occupation.

Ongoing Monthly or Annual Fees

Many variable rate investment loan products include ongoing account-keeping fees, which typically range from $10 to $30 per month ($120 to $360 annually). Some lenders have moved away from these fees, so it's worth comparing investment loan options to find products without ongoing charges.

Additional feature fees may apply for offset accounts, redraw facilities, or other loan features. These typically cost between $5 and $15 per month per feature.

Discharge and Settlement Fees

When you decide to refinance your investment property or sell, discharge fees apply. These typically range from $150 to $500 and cover the administrative costs of closing your loan account. If you're considering an investment loan refinance to secure better investor interest rates, factor these costs into your calculations.

Settlement fees, charged at the beginning of your loan, typically cost between $200 and $500 and cover the costs of finalising the loan documentation and property transfer.

Tax Deductibility of Investment Loan Fees

One significant advantage for property investors is that many fees associated with your rental property loan are tax deductible. Costs directly related to earning rental income or passive income can be claimed as deductions, potentially reducing your taxable income.

Deductible costs generally include:

• Interest charges on your investment property loan
• Loan establishment and application fees (often claimed over five years)
• Ongoing account-keeping fees
• Costs associated with buying an investment property, such as stamp duty (depreciated over time)
• Body corporate fees for apartments or townhouses
• Property management fees

To maximise tax deductions, maintain thorough records of all fees and consult with a tax professional who understands property investment strategies.

Comparing Investment Property Rates and Fees

When evaluating different investment loan products, don't focus solely on the advertised variable interest rate. A loan with a slightly higher interest rate but lower fees might prove more economical over time, particularly if you're planning long-term investor borrowing.

Consider these factors when comparing investment loan options:

1. Comparison rate: This includes the interest rate plus most standard fees, providing a more accurate picture of the true cost
2. Interest rate discounts: Some lenders offer rate discounts for larger loan amounts or lower LVRs
3. Interest only investment options: If you're pursuing negative gearing benefits, interest only loans may align with your strategy
4. Flexibility features: Redraw facilities and offset accounts can provide valuable flexibility
5. Vacancy rate considerations: Ensure your financial position can withstand periods without rental income

The Impact of Fees on Your Investment Strategy

When developing your property investment strategy, understanding fees helps you accurately project returns and cash flow. For instance, if you're considering interest only investment loans to maximise negative gearing benefits, the total cost structure becomes even more important.

Fees also impact your equity release capacity. When you leverage equity from an existing property to fund additional purchases for expanding your property portfolio, establishment fees and LMI for the new loan reduce the available funds.

Getting Professional Guidance

Navigating the various investment loan features, fees, and investment loan benefits can be complex. Working with an experienced mortgage broker in Daglish provides access to multiple lenders and investment property finance options, potentially saving you thousands in fees and interest charges.

A qualified broker can help you understand how different fee structures impact your overall returns, identify lenders offering interest rate discounts that suit your profile, and structure your loans to support long-term financial freedom through property investment.

Whether you're buying your first investment property or expanding an existing portfolio, professional advice ensures you select investment loan products aligned with your goals and circumstances.

Understanding the full fee structure of variable rate investment loans empowers you to make informed decisions about your property investment journey. By factoring in all costs, comparing options carefully, and seeking expert guidance, you can optimise your investment strategy for building wealth through property.

Call one of our team or book an appointment at a time that works for you to discuss your investment property finance needs.