When buying an investment property in Australia, understanding the fees and costs associated with variable rate investment loans is crucial for your property investment strategy. Whether you're purchasing your first investment property or expanding your investment property portfolio, these costs can significantly impact your rental yield and overall returns.
Understanding Variable Interest Rates
A variable interest rate fluctuates with market conditions and your lender's standard rates. Unlike fixed interest rate loans, variable rates can change throughout your loan term, affecting your investment loan repayments. This flexibility often comes with certain fee structures that differ from fixed-rate options.
When calculating investment loan repayments, variable rates typically offer features such as:
• Offset accounts to reduce interest charges
• Redraw facilities for accessing extra repayments
• The ability to make additional repayments without penalties
• Potential access to interest rate discounts
Establishment and Application Fees
Most lenders charge establishment fees when processing your investment loan application. These fees typically range from $300 to $1,500 and cover the administrative costs of setting up your loan. The application process involves assessing your borrowing capacity, reviewing bank statements, and evaluating the investment property.
Some lenders waive establishment fees as part of promotional offers, particularly for clients with substantial loan amounts or strong financial profiles. When applying for an investment loan, it's worth discussing these fees with potential lenders.
Ongoing Monthly and Annual Fees
Variable rate investment loans often include ongoing fees that can impact your property investment returns:
• Monthly account keeping fees: $10-$30 per month
• Annual package fees: $200-$400 for premium loan packages
• Offset account fees: $10-$20 monthly (though many are fee-free)
• Redraw fees: $10-$50 per transaction
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Lenders Mortgage Insurance (LMI)
When your loan to value ratio (LVR) exceeds 80%, you'll likely need to pay lenders mortgage insurance (LMI). This protects the lender if you default on your loan. LMI costs vary based on your LVR and loan amount:
• 85% LVR: Approximately 0.6% of loan amount
• 90% LVR: Approximately 1.8% of loan amount
• 95% LVR: Approximately 3.5% of loan amount
For investment properties, some lenders cap LVR at 90% or require higher LMI premiums compared to owner-occupied properties. Whether you're buying a town house, apartment, or stand alone dwelling, these costs remain consistent.
Valuation and Legal Fees
Every rental property loan requires a professional valuation to confirm the property's worth. Valuation fees typically cost $300-$800, depending on the property type and location. Legal fees for settlement and loan documentation range from $800-$1,500.
When you research property options, factor these costs into your budget alongside stamp duty obligations.
Professional Service Fees
Many investors engage mortgage brokers to access investment loan options from banks and lenders across Australia. Broker services are typically provided at no direct cost to borrowers, as lenders pay commissions for successful loan settlements.
Accountants and financial planners may charge fees for advice on negative gearing strategies and property investment structuring, typically ranging from $500-$2,000 depending on complexity.
Comparison and Switching Costs
Variable rate loans offer flexibility to refinance when better rates become available. However, switching loans involves costs including:
• Discharge fees from your current lender: $300-$700
• New loan establishment fees
• Legal and valuation fees for the new loan
• Potential break costs (rare with variable rates)
Managing Investment Loan Costs
To optimise your investment loan features and minimise costs:
- Compare multiple lenders to find suitable interest rate discounts
- Consider loan packages that bundle features with reduced fees
- Evaluate whether premium packages justify their annual costs
- Factor all costs into your rental yield calculations
- Review your loan regularly to ensure it remains competitive
When you invest in real estate, particularly in the evolving property market, having access to diverse investment loan options helps you structure financing that aligns with your investment goals.
Making Informed Investment Decisions
Buying a rental property involves substantial upfront and ongoing costs beyond the property purchase price. Understanding these fees helps you make informed decisions about your borrowing capacity and investment strategy.
Whether you're considering your first investment property or expanding your portfolio, professional advice can help you understand how different loan structures impact your overall returns. A streamlined application process with the right lender can also reduce some administrative costs and timeframes.
Variable rate investment loans offer flexibility that can benefit property investors, but understanding all associated costs ensures you're making decisions based on complete information. From stamp duty to ongoing loan fees, each cost component affects your investment's profitability and should be carefully considered in your planning.
Ready to explore investment loan options for your property purchase? Call one of our team or book an appointment at a time that works for you to discuss your investment goals and find suitable loan solutions.
