Fixed Rate Investment Loans: Fees and Costs Explained

What Are Fixed Rate Investment Loans?

When you're buying an investment property, one of the biggest decisions you'll face is choosing between a variable rate or fixed rate loan. A fixed interest rate means your investment loan interest rate stays the same for an agreed period, typically between one and five years. This gives you certainty around your loan repayments and helps with budgeting your property investment strategy.

While fixed rate investment loan products offer stability and predictability, they come with specific fees and costs that differ from variable rate loans. Understanding these charges is crucial for calculating investment loan repayments accurately and maximising tax deductions.

Application and Establishment Fees

When you submit an investment loan application, most lenders charge an upfront application fee. This typically ranges from $300 to $1,000, though some lenders waive this fee depending on your loan amount and the overall investment loan features you select.

Establishment fees cover the administrative costs of setting up your property investment loan. These can range from $200 to $600 across different banks and lenders across Australia. The good news is that these are often claimable expenses, meaning you can include them when you maximise tax deductions related to your rental property loan.

Valuation Costs

Before approving your investment loan, lenders require a professional property valuation to confirm the property's worth and calculate your loan to value ratio (LVR). Valuation fees typically cost between $200 and $400, depending on the property's location and type.

If you're investing in a unit with body corporate, the valuation process may take slightly longer and could incur additional charges. These costs are separate from your investment loan amount but are necessary for securing investor borrowing approval.

Lenders Mortgage Insurance (LMI)

If your investor deposit is less than 20% of the property's value, you'll likely need to pay Lenders Mortgage Insurance (LMI). This protects the lender if you default on your loan. LMI costs can range from a few thousand dollars to tens of thousands, depending on your loan amount and LVR.

For example, if you're borrowing $500,000 with a 10% deposit, your LMI could be around $15,000 to $20,000. While this is a significant upfront cost, it can sometimes be capitalised into your loan amount, and it's generally tax-deductible over five years.

Fixed Rate Break Costs

One of the most significant costs unique to fixed rate loans is the break fee. If you need to refinance, sell your investment property, or make large additional repayments during your fixed period, you may face substantial break costs.

These fees compensate the lender for the difference between your fixed interest rate and the current market rate. If interest rates have dropped since you fixed your rate, these costs can be considerable - sometimes reaching tens of thousands of dollars.

This is why understanding your property investment strategy before locking in a fixed rate is crucial. Consider factors like:

• How long you plan to hold the property
• Your likelihood of needing to access equity release
• Potential changes to your financial situation
• Your need for rental income stability versus flexibility

Ongoing Monthly and Annual Fees

Most investment loan products include ongoing account-keeping fees, ranging from $10 to $20 per month ($120 to $240 annually). While these might seem small, they add up over time and should be factored into your property investment finance calculations.

Some fixed rate investment loan options also charge annual package fees, particularly if you're bundling multiple products or accessing premium investment loan features. These typically range from $250 to $395 per year.

Interest Only vs Principal and Interest Costs

Many property investors choose interest only investment loans to improve cash flow and leverage the negative gearing benefits. However, interest only periods on fixed rate loans may attract slightly higher investor interest rates compared to principal and interest options.

While interest only repayments are lower in the short term, you need to plan for when this period ends. Your repayments will increase when you start paying down the principal, which could affect your passive income calculations and overall portfolio growth strategy.

Rate Lock Fees

Some lenders charge a rate lock fee if you want to secure a fixed interest rate before settlement. This typically costs between $500 and $1,000 and guarantees your rate won't change even if market rates increase before your loan settles.

Rate lock periods usually last between three and six months. If settlement takes longer, you may need to pay extension fees or accept current market rates.

Discharge and Switching Fees

When your fixed term ends or if you decide to conduct an investment loan refinance, you'll encounter discharge fees (typically $300 to $400). If you're switching from fixed to variable within the same lender, switching fees usually range from $200 to $500.

These costs are worth considering if you're planning to leverage equity from your investment property to fund additional purchases and achieve financial freedom through property.

Comparing Investment Loan Options

With so many investment loan products available, it's worth exploring options from multiple lenders. Access investment loan options from banks and lenders across Australia to compare:

• Investment loan interest rates and potential rate discounts
• Fee structures and ongoing costs
• Fixed rate periods available
• Flexibility features
• Interest only investment options
• Policies on equity release and portfolio growth

Consider getting a loan health check to ensure your current investment property rates remain competitive and your loan structure supports your build wealth goals.

Tax Implications of Fees and Costs

One of the investment loan benefits is that most fees and costs are tax-deductible. This includes:

• Application and establishment fees
• Ongoing account-keeping fees
• Interest charges
• LMI (spread over five years)
• Valuation fees

However, costs related to purchasing the property itself, like stamp duty and conveyancing fees, are treated differently for tax purposes. Speaking with an accountant who understands building wealth property strategies can help you claim all eligible expenses correctly.

At Credible Finance, we understand that managing fees and costs is just one part of your property investment journey. Whether you're based in Prestons or anywhere across Australia, our team can help you access a wide range of investment loan options tailored to your situation. We'll work with you to find investment loan features that align with your goals while minimising unnecessary costs.

Call one of our team or book an appointment at a time that works for you to discuss your property investor loan needs and start building your path to financial freedom.