The Easiest Way to Understand Investment Loan Fees

What You're Actually Paying on a Variable Rate Investment Loan

A variable rate investment loan comes with multiple layers of cost. The advertised interest rate is the starting point, but the true cost includes application fees, ongoing account fees, LMI premiums where your deposit sits below 20 per cent, and potential exit costs if you refinance or sell early. In our experience, investors underestimate the impact of these additional charges, particularly when comparing loan products on rate alone.

Consider a Croydon Park investor purchasing a two-bedroom unit near Croydon Park Village. They've secured pre-approval for a variable rate loan at 6.35 per cent with an 18 per cent deposit. The application fee is $795, with a $395 annual package fee waived for the first year. Because the deposit sits below 20 per cent, the lender requires LMI, which adds roughly $8,000 to upfront costs. Over the first 12 months, the investor pays around $30,000 in interest, $795 in establishment costs, and capitalises the LMI premium into the loan balance. That's $38,795 in direct borrowing costs before any principal repayment or property expense.

The structure of investment loans varies significantly between lenders, and the advertised rate rarely tells the full story. Some lenders bundle valuation and settlement fees into a single application charge, while others itemise each component separately. A loan with a slightly higher rate and no ongoing fees can outperform a discounted rate product with annual fees, depending on how long you hold the loan.

Application and Establishment Costs

Most lenders charge an upfront application fee between $600 and $1,200 for a variable rate investment loan. This fee covers credit assessment, valuation, and settlement preparation. Some lenders waive this fee as part of a promotional offer, but those offers typically require a minimum loan size or come with higher ongoing account fees. The valuation itself can cost between $200 and $600 depending on property type and location, and is usually absorbed into the establishment fee or charged separately.

Settlement fees range from $150 to $300 and cover the administrative cost of disbursing funds on settlement day. If you're using a solicitor or conveyancer, they'll coordinate this directly with the lender. Some brokers negotiate fee waivers on your behalf, particularly where you're borrowing above $500,000 or bringing multiple properties to the same lender. We regularly see this on variable rate products where the lender expects to retain the client long-term and recoup costs through interest margin.

Lenders Mortgage Insurance and How It's Calculated

LMI becomes payable when your deposit falls below 20 per cent of the property's value. The premium is calculated on a sliding scale based on your loan amount and LVR, and varies between insurers. An investor borrowing at 85 per cent LVR typically pays between 1.5 per cent and 2.5 per cent of the loan amount as an LMI premium. At 90 per cent LVR, that figure can rise to 3 per cent or more. The premium is a one-time cost, usually capitalised into your loan balance, and is not refundable even if you repay the loan early or refinance within the first year.

In a scenario where a Croydon Park investor borrows at 88 per cent LVR on a variable rate loan, the LMI premium might sit around $12,000. That premium is calculated before settlement and added to the loan balance at drawdown. Some lenders allow you to pay the premium upfront rather than capitalising it, which reduces your ongoing interest cost marginally. LMI protects the lender, not the borrower, but it enables access to higher LVR lending that would otherwise be unavailable. For investors with limited deposit but strong serviceability, it's often the only path to entry.

Ongoing Account and Package Fees

Variable rate investment loans often carry an annual package fee, typically between $299 and $495. This fee unlocks a suite of features including offset accounts, fee-free additional repayments, and access to discounted rates across multiple loan splits. Some lenders waive the package fee for the first year, then revert to the standard annual charge. Others waive it entirely provided your total borrowing exceeds a threshold, often $250,000 or $500,000 across all facilities with that lender.

Where you're holding multiple investment properties with the same lender, a single package fee can cover all linked loans. That structure becomes cost-effective once you're managing two or more properties, as you're paying one annual fee rather than multiple account-keeping charges. For a single-property investor in Croydon Park with a modest loan balance, a no-fee basic variable product might deliver lower total cost over a five-year hold period, even if the interest rate sits 0.10 per cent higher.

Interest Rate Discounts and How They're Applied

Variable rate investment loans are priced as a margin above the lender's standard variable rate. Most lenders advertise a headline discount, often expressed as 0.50 per cent to 1.00 per cent off the standard rate, depending on your LVR, loan size, and whether you're taking a package. The discount is not guaranteed to remain constant over the life of the loan. Lenders adjust their standard variable rate in response to cash rate movements and funding costs, and the discount you receive at origination may be reduced over time if you don't actively manage the loan.

We regularly see investors locked into a variable rate that was once discounted but is now 0.30 per cent above current market pricing because the lender has eroded the discount through multiple rate rises. A loan health check every 12 to 18 months ensures your rate remains aligned with what the lender offers new customers. If it doesn't, refinancing to a new lender or negotiating a rate review with your current lender can bring the cost back in line.

Switching Between Interest-Only and Principal-and-Interest

Most variable rate investment loans allow you to switch between interest-only and principal-and-interest repayments without refinancing, though some lenders charge a fee for each switch. The fee typically sits between $150 and $300. Interest-only periods are usually capped at five years per application, after which you can request a renewal or convert to principal-and-interest. Lenders reassess your serviceability each time you request an interest-only extension, so if your income or rental yield has declined, the request may be declined.

Croydon Park investors holding units near the station often favour interest-only structures during the first five years to maximise cash flow and offset holding costs through rental income. Once equity builds and the loan balance reduces through capital growth, switching to principal-and-interest can accelerate debt reduction without materially affecting after-tax cash flow. The flexibility to switch is valuable, but only where the loan contract allows it without penalty. Some budget variable rate products lock you into one repayment type for the life of the loan.

Exit Costs and Discharge Fees

When you sell an investment property or refinance to a new lender, your current lender charges a discharge fee to release the mortgage. This fee typically ranges from $250 to $400 per loan account. If you've split your loan across multiple accounts, you'll pay a discharge fee for each. Some lenders also charge a break cost on variable rate loans where the loan is repaid within a certain period after drawdown, often 12 months. This is uncommon but not unheard of, particularly on heavily discounted or cashback variable products.

If you've capitalised LMI into your loan balance and you refinance within the first two years, you've paid interest on that premium for a short period and gained no long-term benefit. Where possible, plan your hold period to exceed three years before refinancing, so the value of any rate discount or feature access justifies the upfront cost.

Rate Holds, Offset Accounts, and Redraw

Most variable rate investment loans come with a redraw facility, allowing you to withdraw any additional repayments you've made above the minimum. Some lenders charge a fee per redraw, typically $10 to $50, while others offer unlimited fee-free redraws. Offset accounts, by contrast, keep your surplus funds in a separate transaction account linked to your loan, reducing the interest charged without physically reducing the loan balance. Offset accounts are usually only available on package variable products, and they attract the annual package fee.

For tax purposes, an offset account is often preferable to redraw on an investment loan. If you redraw funds from the loan and use them for a private purpose, you dilute the deductibility of your interest. An offset keeps the funds separate, preserving the full deductibility of interest on the loan balance. This distinction matters more as your portfolio grows and your marginal tax rate increases.

Call one of our team or book an appointment at a time that works for you. We'll walk through your current loan structure, identify where fees are eroding your return, and show you what a more efficient variable rate setup looks like for your Croydon Park investment.

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