The easiest way to understand investment loan fees

Variable rate investment loans carry a range of fees and costs that affect how much you can borrow and what you actually pay each month.

Most clinical pharmacists looking at investment property finance focus on the interest rate before anything else, but the fee structure matters just as much when you're calculating returns and working out whether a property stacks up. Application fees, ongoing account-keeping charges, and exit costs all feed into the real cost of holding a rental property over time.

Upfront application and establishment fees

Application fees cover the lender's cost of processing your loan and typically range from $300 to $800, though some lenders waive them entirely. An establishment fee is charged when the loan settles and can be anywhere from $0 to $600.

Consider a clinical pharmacist refinancing an existing investment property with a loan amount of $520,000. One lender quotes a $600 application fee plus a $400 establishment fee. Another quotes no application fee and no establishment fee but charges a slightly higher ongoing monthly fee. Over the first year, the second option might still cost less overall depending on how the monthly charges add up, but over a five-year hold period the difference often flattens out or reverses.

Some lenders will capitalise these upfront costs into the loan amount rather than requiring payment at settlement, which can help with cash flow but increases the total amount you're paying interest on. If you're borrowing close to your capacity, capitalising fees can also push your loan-to-value ratio higher and trigger Lenders Mortgage Insurance where it might otherwise have been avoided.

Ongoing account-keeping and package fees

Most variable rate investment loans charge a monthly account-keeping fee, usually between $10 and $15 per month. Some lenders bundle investment loans into a package that includes a lower interest rate in exchange for an annual package fee, typically $300 to $395 per year.

Packages often make sense when your total borrowing across home loans and investment loans exceeds a certain threshold, usually around $150,000 to $250,000, because the rate discount outweighs the package fee. If your only borrowing is a single investment loan with a modest balance, the package fee might cost more than it saves.

Account-keeping fees are not tax-deductible in the year they're paid. They must be deducted over five years or the life of the loan, whichever is shorter. Package fees follow the same rule. In practice, most investors claim one-fifth of the fee each year, but if you refinance or sell the property within that five-year period, any unclaimed portion can be deducted in the final year.

Discharge and settlement fees

When you sell an investment property or refinance to another lender, your current lender will charge a discharge fee to release the mortgage, usually between $300 and $500. Some lenders also charge a settlement fee when the loan is first drawn down, which is separate from the establishment fee and typically ranges from $100 to $200.

These costs don't affect your decision to buy, but they matter when you're comparing the total cost of staying with your current lender versus refinancing to access a lower rate. If you're considering a refinance that saves $80 per month in interest, but the discharge fee and new establishment fee together cost $900, it takes around 11 months to break even before the refinance delivers a net benefit.

Valuation and legal fees

Valuation fees are charged by the lender to assess the property's market value and typically range from $200 to $400 depending on the property type and location. The fee is usually paid upfront at the time of application.

Legal fees for mortgage documentation, title search, and registration are separate from the lender's fees and are paid to your solicitor or conveyancer. These costs are not controlled by the lender but are still part of the total cost of setting up the investment loan.

Valuation fees are immediately deductible as a borrowing expense in the year they're incurred. Legal fees related to the mortgage and loan documentation are also immediately deductible, but legal fees related to the purchase of the property itself must be added to the cost base for capital gains tax purposes and are not claimed as an annual deduction.

Variable rate break costs and switching fees

Unlike fixed rate loans, variable rate loans generally do not carry break costs if you repay the loan early or switch to another product. Some lenders do charge a switching fee if you move from a variable rate to a fixed rate within the same institution, usually around $300 to $500.

This absence of break costs gives you more flexibility to refinance when market conditions change or to sell the property without a penalty. If you're holding the property short-term or expect your circumstances to change within a few years, a variable rate structure avoids the exit costs that can make fixed rate loans more expensive to unwind.

Offset account and redraw fees

Many variable rate investment loans offer an offset account, though not all do. Some lenders charge a monthly fee for the offset account, typically $10 to $15 per month, while others include it in the package fee or provide it at no additional cost.

Redraw facilities usually allow you to access extra repayments you've made above the minimum, but some lenders charge a fee per redraw transaction, typically $10 to $50. Others allow unlimited free redraws. If you plan to use redraw as a cash flow management tool, confirming the fee structure upfront avoids unexpected costs later.

Offset accounts keep your funds separate from the loan balance and maintain full access without a transaction fee, which makes them more suitable for managing fluctuating income or holding funds earmarked for future property expenses. Redraw reduces your loan balance and the interest charged, but accessing those funds can trigger a fee and may require a few days' notice depending on the lender.

How fees affect borrowing capacity

Lenders assess your ability to service an investment loan by calculating your net rental income after deducting vacancy assumptions, property management fees, council rates, insurance, and ongoing loan costs including interest and fees. Monthly account-keeping fees and annual package fees are both included in this calculation.

A $15 monthly account-keeping fee and a $395 annual package fee together cost around $575 per year. Over the life of a 30-year loan, that's more than $17,000 in fees before accounting for any other costs. If you're comparing two loan products with similar interest rates but different fee structures, the one with lower ongoing fees will often leave you with better cash flow and a higher net return, particularly on properties with modest rental yields.

In our experience, clinical pharmacists who run the numbers on after-tax returns often find that a loan with a slightly higher rate and lower fees outperforms a loan with a discounted rate and high ongoing charges, especially when the investment property is negatively geared and the fees are being claimed over five years rather than deducted immediately.

Call one of our team or book an appointment at a time that works for you to review the fee structures across lenders and work out which loan product fits your investment strategy and cash flow.

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