Investment Loans & Variable Rate Fees You Need to Know

Variable rate investment loans come with more than just the interest rate you see advertised.

Most lenders charge a combination of upfront application fees, ongoing annual fees, and transaction costs that add hundreds to thousands of dollars to the total cost of holding an investment property. The structure of these fees varies between lenders, and understanding which costs are claimable as tax deductions can shift the real expense significantly.

Application and Establishment Fees on Investment Loans

Most lenders charge an upfront application or establishment fee when you take out a variable rate investment loan, typically between $300 and $900. This fee covers the lender's cost of processing your application, ordering a valuation, and setting up the loan account. Some lenders waive this fee entirely as part of promotional offers or when you refinance from another institution, but it's not a given.

The application fee is tax deductible in the year it's paid when the loan is used for income-producing purposes. If you're borrowing to purchase a rental property in Merrylands, that upfront charge becomes part of your claimable expenses for the financial year, reducing the actual out-of-pocket cost once your return is lodged. When comparing investment loans from different lenders, factor in whether the fee is present, how much it is, and whether it can be capitalised into the loan amount or must be paid upfront from your own funds.

Ongoing Annual Fees and Package Discounts

Many variable rate investment loans include an annual package fee, usually between $350 and $400 per year. This fee unlocks rate discounts, offset account functionality, and sometimes fee waivers on linked products like credit cards or transaction accounts. The annual fee is deductible each year the loan is held for investment purposes.

Consider a Merrylands investor holding two properties under a single loan package. The $395 annual fee covers both loans and gives access to a 0.60 per cent rate discount on each. Over 12 months at current variable rates, that discount saves roughly $3,600 on a combined loan balance of $600,000, well above the cost of the package fee. The package structure makes sense when the interest saving exceeds the fee, but it's worth reviewing each year, particularly if your loan balance has reduced or you've paid off one of the properties. Some lenders allow you to drop the package and move to a base rate without the ongoing fee if the numbers no longer work in your favour.

Valuation Costs and When They Apply

Lenders require a current valuation when you take out a new investment loan or refinance an existing one. The valuation fee is typically between $200 and $400, depending on the property type and location. For a standard residential property in Merrylands, expect to pay around $250 to $300. This cost is usually deductible as a borrowing expense when incurred for an investment property loan.

Valuations can be charged again if you apply to increase your loan amount, switch from interest-only to principal and interest, or request a formal revaluation to remove lenders mortgage insurance once your equity position improves. Some lenders offer desktop valuations at a lower cost or waive the valuation fee entirely during refinance campaigns, but these offers are time-limited and lender-specific. When you're looking at refinancing to access equity for a second investment property, the valuation fee on the original property becomes part of the cost of the new loan and is deductible in the year it's paid.

Discharge and Settlement Fees When You Exit

When you sell an investment property or refinance away from your current lender, a discharge fee applies. This fee, typically between $150 and $400, covers the lender's cost of preparing discharge documents and releasing the mortgage from the property title. The fee is deductible as a borrowing expense related to the investment property in the year the discharge occurs.

Settlement fees can also apply on the incoming side when you refinance to a new lender. These fees, often bundled into the application or establishment fee, cover the cost of registering the new mortgage and settling funds. Together, discharge and settlement fees can add $500 to $800 to the total cost of moving your loan, which is why refinancing only makes sense when the interest saving or feature improvement justifies the exit cost. If you're moving from a fixed rate loan with break costs, those costs sit on top of the discharge fee and can run into thousands of dollars depending on rate movements and time remaining.

Offset Account Fees and Their Value

Offset accounts linked to variable rate investment loans can carry monthly fees, typically $10 to $20 per month, though many lenders include them within a loan package fee. An offset account reduces the interest charged on your loan by the balance held in the account, without reducing your ability to claim the full interest deduction.

For a Merrylands investor holding $30,000 in an offset account against a $500,000 investment loan, the interest saving at current variable rates is roughly $2,000 per year. The full loan interest remains deductible because the loan balance hasn't changed. If the offset account fee is $15 per month, or $180 per year, the net benefit is still close to $1,800. Offset accounts make sense for investors who hold surplus cash temporarily between property purchases or who want to keep funds liquid rather than parking them in a savings account. If your loan is part of a package with no separate offset fee, the account is included and there's no additional cost to holding it.

Lenders Mortgage Insurance and How It's Calculated

Lenders mortgage insurance is charged when your loan to value ratio exceeds 80 per cent. For investment loans, LMI premiums are higher than for owner-occupied loans at the same LVR, reflecting the additional risk lenders assign to investment lending. The premium is a one-off cost, typically added to the loan balance, and can range from a few thousand dollars at 85 per cent LVR to over $20,000 at 95 per cent LVR on a $600,000 loan.

LMI premiums on investment loans are tax deductible, but the deduction must be spread evenly over five years or the life of the loan, whichever is shorter. If you pay $12,000 in LMI on a new investment loan, you can claim $2,400 per year for five years. If you sell the property or refinance within that period, any remaining unclaimed portion can be deducted in the year of sale or discharge. LMI is not refundable, so if you refinance to a new lender within two years and your LVR is still above 80 per cent, you may be charged LMI again by the new lender unless they offer LMI portability or waiver.

Interest Rate Discounts and Negotiation

The advertised variable rate on an investment loan is rarely the rate you'll end up paying. Most lenders offer rate discounts based on loan size, LVR, and whether you're taking out a package. Discounts typically range from 0.40 per cent to 0.90 per cent off the standard variable rate, with larger loans and lower LVRs attracting the deepest cuts.

Rate discounts don't carry a separate fee, but they're often conditional on maintaining a package fee or holding the loan with a particular product structure. If you drop the package, the discount usually drops with it, lifting your interest rate back toward the standard variable rate. When comparing lenders, look at the total interest cost after discounts and fees rather than the headline rate alone. A lender advertising a lower base rate but offering minimal discounts and higher fees can end up costing more over 12 months than a lender with a slightly higher base rate, larger discounts, and lower fees. Your broker can model the total cost across multiple lenders using your specific loan amount and LVR to show the real difference.

Loan Splitting Fees and Why Investors Use Them

Loan splitting involves dividing your total borrowing into two or more separate loan accounts, each with its own rate type, repayment structure, or feature set. Many lenders allow you to split a variable rate investment loan at no extra cost, though some charge a small fee of $100 to $300 per additional split.

Investors use loan splits to separate interest-only and principal and interest portions, to quarantine offset balances against specific loan splits, or to hedge interest rate risk by fixing part of the loan while leaving the rest variable. A Merrylands investor with a $600,000 loan might split it into $400,000 interest-only variable and $200,000 principal and interest variable. The interest-only portion maximises tax deductions and cash flow, while the principal and interest portion builds equity and provides a buffer if rental income drops. There's no additional ongoing fee for holding multiple splits under most lenders, though each split may have its own redraw or offset fees depending on the loan structure.

Call one of our team or book an appointment at a time that works for you. We'll walk through the fee structure of your current loan or any new investment loan options you're considering, show you which costs are claimable, and help you model the total holding cost across lenders so you can make an informed decision on where to place your next investment loan.

Frequently Asked Questions