If you're considering buying an investment property in Cannon Hill or looking to refinance your existing rental property loan, understanding the fees and costs associated with variable rate investment loans is crucial for your property investment strategy. Let's break down what you need to know about investment loan costs so you can build wealth through property with confidence.
What Makes Variable Rate Investment Loans Different?
A variable interest rate on your investment loan means your interest rate can move up or down based on market conditions and lender decisions. Unlike fixed interest rate loans where your rate stays locked for a set period, variable rate loans offer flexibility that many property investors find valuable for portfolio growth.
The main investment loan benefits of choosing a variable rate include:
- Access to offset accounts and redraw facilities
- Ability to make extra repayments without penalties
- Potential to benefit from rate discount offers
- More flexible investment loan features for managing cash flow
- Option to switch between interest only and principal and interest repayments
Understanding Investment Loan Application Fees
When you apply for an investment property loan, you'll encounter several upfront costs. The application fee (sometimes called an establishment fee) typically ranges from $0 to $1,000 depending on the lender and investment loan products you choose.
Some lenders also charge a valuation fee, usually between $200 and $400, to assess the property you're purchasing. This helps them determine the loan to value ratio (LVR) and whether Lenders Mortgage Insurance (LMI) applies to your investment loan amount.
Ready to get started?
Book a chat with a Finance & Mortgage Broker at LBK Lending today.
Lenders Mortgage Insurance: A Significant Cost
If your investor deposit is less than 20% of the property value, most lenders require LMI. This insurance protects the lender if you can't meet your repayments, but it's a cost you'll need to pay. LMI can add thousands to tens of thousands of dollars to your investment loan costs, depending on your loan amount and LVR.
For example, on a $500,000 investment property loan with a 10% investor deposit ($50,000), LMI could cost around $15,000 to $20,000. The good news is that LMI is a claimable expense that can help maximise tax deductions, and you can often capitalise it into your loan amount rather than paying upfront.
Some property investors explore no LMI loan options through certain lenders who offer these products to professionals or those with strong borrowing capacity.
Ongoing Fees to Consider
Beyond the upfront costs, variable rate investment loans come with ongoing fees that affect your investment property finance:
- Annual package fees: Some lenders charge $200 to $400 per year for loan packages that include rate discounts and additional investment loan features
- Monthly account keeping fees: Typically $10 to $15 per month, though many lenders have removed these
- Body corporate fees: If you're investing in a unit or apartment, these aren't loan fees but essential costs for your investment property
- Offset account fees: Usually included but some lenders charge around $10 per month
Interest Rate Discounts and How They Work
When you access investment loan options from banks and lenders across Australia through a mortgage broker like LBK Lending, you'll find that investor interest rates are typically 0.20% to 0.60% higher than owner-occupier rates.
However, many lenders offer interest rate discounts based on:
- Your loan amount (larger loans often receive better rates)
- Your LVR (lower risk borrowers may qualify for discounts)
- Whether you're a new or existing customer
- The total relationship you have with the lender
These rate discount opportunities can save you thousands of dollars over the life of your property investor loan, making it worthwhile to review your investment loan refinance options regularly.
Calculating Investment Loan Repayments
When calculating investment loan repayments, you'll need to factor in whether you choose interest only or principal and interest repayments. Interest only investment loans are popular with property investors because:
- Lower monthly repayments improve cash flow
- You can potentially maximise tax deductions on interest payments
- Rental income covers repayments more comfortably
- You can leverage equity for additional investments
However, remember that interest only periods typically last 1-5 years before reverting to principal and interest, which increases your repayments.
Tax Benefits and Investment Property Finance
The fees and costs associated with your investment loan offer several tax benefits. As a property investor, you can claim:
- Interest charges as tax deductions
- Loan establishment and application fees
- LMI premiums
- Ongoing account fees
- Stamp duty costs (in some situations)
These claimable expenses, combined with negative gearing benefits if your rental income is less than your loan costs, can significantly reduce your taxable income. The vacancy rate in Cannon Hill is relatively low, which helps ensure consistent rental income to cover your costs and contribute to building wealth property.
Hidden Costs and Considerations
When reviewing investment loan options, watch out for these less obvious costs:
- Discharge fees ($150-$400) if you refinance or sell
- Settlement fees ($100-$300)
- Break costs if you exit an interest only period early
- Additional documentation fees
- Loan variation fees if you need to make changes
Your borrowing capacity and the investment loan features you require will influence which investment loan products suit your property investment strategy for achieving financial freedom.
Making the Right Choice for Your Property Investment Strategy
Choosing the right variable rate investment property loan involves balancing costs against features. Consider:
- How the fees impact your overall investment returns
- Whether the investment loan benefits justify any additional costs
- How interest only investment options fit your cash flow needs
- Whether you need flexibility to equity release or leverage equity later
- Your plans for passive income and portfolio growth
At LBK Lending, we help Cannon Hill property investors access investment loan options from banks and lenders across Australia. We'll work with you to find investment loan products that align with your goals, whether you're buying your first rental property or expanding an existing portfolio.
Understanding the full picture of fees and costs associated with variable rate investment loans helps you make informed decisions about building wealth through property. From calculating the true cost of your investor borrowing to maximising tax benefits, every detail matters in your investment property finance strategy.
Call one of our team or book an appointment at a time that works for you. We'll help you compare investment property rates and find the right loan structure for your situation.
