Variable Rate Investment Loans: Fees and Costs Explained

Understanding Variable Rate Investment Loans

For property investors across Victoria and Australia, choosing the right investment loan structure can significantly impact your property investment strategy and overall returns. Variable rate investment loans remain a popular choice among investors due to their flexibility and potential for interest rate discounts when market conditions change.

A variable interest rate means your investment loan interest rate can move up or down in response to market conditions and lender decisions. While this introduces some uncertainty around calculating investment loan repayments, it also provides opportunities to benefit from rate decreases and offers greater flexibility compared to fixed rate alternatives.

Key Fees Associated with Variable Rate Investment Loans

When exploring investment loan options, understanding the full cost structure beyond the advertised interest rate is essential for making informed decisions about your property investment finance.

Application Fees

Most lenders charge an upfront application fee when you apply for an investment property loan. These fees typically range from $250 to $1,000, though some lenders waive this cost entirely. This fee covers the administrative costs of processing your investment loan application and assessing your investor borrowing capacity.

Ongoing Account Fees

Many investment loan products include monthly or annual account keeping fees, usually between $10 and $30 per month. These fees maintain your loan account and provide access to online banking facilities and statements.

Valuation Fees

Lenders require a professional property valuation to determine the loan to value ratio (LVR) and assess the security. Valuation costs typically range from $200 to $600, depending on the property type and location. Some lenders may cover this cost as part of promotional offers.

Settlement Fees

At settlement, you may encounter fees ranging from $150 to $500 for the finalisation of your investment property loan. These cover the administrative costs of disbursing funds and registering the mortgage.

Lenders Mortgage Insurance (LMI)

When your investor deposit is less than 20% of the property value, resulting in an LVR above 80%, lenders typically require LMI. This one-time premium protects the lender if you default on the loan. LMI costs vary significantly based on your LVR and loan amount, potentially ranging from several thousand to tens of thousands of dollars. However, the tax benefits of LMI include being a claimable expense for investment properties.

Ongoing Costs to Consider

Interest Charges

Your primary ongoing cost is the interest charged on your investment loan amount. Investor interest rates are typically slightly higher than owner-occupier rates, often by 0.25% to 0.50%. However, this interest is generally tax-deductible, providing significant negative gearing benefits for property investors.

Redraw and Extra Repayment Fees

Many variable rate investment loans allow additional repayments and redraw facilities. While these investment loan features provide flexibility, some lenders charge fees for accessing redraw funds, typically $20 to $50 per transaction. Understanding these costs is important when planning your portfolio growth strategy.

Package Fees

Some lenders offer package deals that bundle your investment property rates with other products like credit cards or transaction accounts. Annual package fees range from $300 to $400 but may provide access to rate discounts and fee waivers that offset the cost.

Investment Loan Features That Add Value

When comparing investment loan products, several features can provide substantial benefits:

Interest Only Repayments

Interest only investment structures allow you to pay only the interest charges for a set period, typically 1-5 years. This reduces your monthly repayments, potentially improving cash flow and allowing you to leverage equity for portfolio growth. After the interest only period, the loan reverts to principal and interest repayments.

Offset Accounts

An offset account linked to your investment property loan can reduce interest charges by offsetting your balance against the loan amount. This provides flexibility while maintaining access to your funds for property maintenance, vacancy rate coverage, or future investments.

Flexible Repayment Options

Variable rate loans typically allow you to make additional repayments without penalty, helping you build wealth through debt reduction when cash flow permits.

Maximising Tax Deductions

Understanding claimable expenses is crucial for property investors. Beyond interest charges, you can typically claim:

• Loan application and establishment fees
• Ongoing account keeping fees
• LMI premiums (spread over the loan term)
• Body corporate fees
• Property management costs
• Depreciation on building and fixtures

These tax benefits significantly improve the actual cost of your investment property finance.

Investment Loan Refinance Opportunities

Variable rate structures make it easier to pursue an investment loan refinance when better investment loan options become available. Unlike fixed rate products with break costs, switching variable rate loans typically involves fewer penalties. This flexibility allows you to access investment loan options from banks and lenders across Australia as market conditions evolve.

Calculating Total Loan Costs

When evaluating different investment loan products, consider:

1. The advertised interest rate and any rate discount periods
2. All upfront fees and charges
3. Ongoing monthly or annual fees
4. Potential LMI costs based on your investor deposit
5. Features that align with your property investment strategy
6. Tax deductibility of various costs

Calculating investment loan repayments should factor in all these elements to understand the true cost over your intended investment timeframe.

Building Wealth Through Property Investment

While fees and costs are important considerations, they should be viewed within your broader strategy for building wealth property investments. The right investment loan structure supports your goals whether you're buying an investment property for the first time or expanding an existing portfolio.

Variable rate investment loans offer flexibility that can adapt as your circumstances change, supporting strategies like equity release for future purchases, managing periods requiring rental income to cover costs, and adjusting repayment structures as your financial position strengthens.

Making Informed Investment Decisions

Accessing professional guidance helps you understand the full picture of investment loan benefits and costs. Different lenders structure their fees differently, and what appears to be a lower interest rate might involve higher fees that increase total costs.

At James Hawkins Mortgage Broker, we help property investors across Victoria and Australia access investment loan options from banks and lenders across Australia. Our expertise in investment loans ensures you understand all costs involved and can make informed decisions aligned with your financial goals and property investment strategy.

Whether you're exploring interest only investment structures, considering your borrowing capacity for portfolio expansion, or reviewing existing loans through a loan health check, professional advice helps you structure your property investment finance effectively.

Call one of our team or book an appointment at a time that works for you to discuss your investment loan requirements and create a financing strategy that supports your path to financial freedom.