Fixed Rate Investment Loan Fees and Costs to Watch

Fixed rate investment loans carry distinct fees and costs beyond the headline interest rate.

Application fees, valuation charges, settlement costs and ongoing account-keeping fees apply across most lenders. Exit costs can add thousands if you repay early or refinance before the fixed period ends. Break costs on fixed rate loans are calculated using the lender's wholesale funding loss and can fluctuate depending on rate movements between the date you fixed and the date you exit.

Application and Settlement Fees on Investment Loans

Most lenders charge an application fee between $300 and $600 for fixed rate investment loans, though some waive this fee during promotional periods. A property valuation fee of $150 to $300 typically applies, depending on the property's location and complexity. Settlement fees range from $200 to $400 and cover the cost of preparing loan documentation and coordinating with solicitors. Account-keeping fees for investment loans vary between $10 and $20 per month and are charged regardless of whether the loan is fixed or variable.

Consider an investor purchasing a two-bedroom unit in Bentleigh, close to Centre Road shops and rail. The investor opts for a three-year fixed rate. Upfront costs include a $400 application fee, a $250 valuation fee and a $300 settlement charge, totalling $950 before any additional legal or conveyancing costs. These fees are paid at settlement and cannot be claimed as an immediate tax deduction. Instead, borrowing expenses under $100 are deductible in the year incurred, while expenses over $100 must be spread over five years or the loan term, whichever is shorter. The investor in this scenario would claim $190 per year for five years.

What Are Fixed Rate Break Costs and When Do They Apply

Break costs apply when you repay a fixed rate loan in full, or partially beyond the extra repayment limit, before the fixed term ends. Lenders calculate break costs based on the difference between the fixed rate you're paying and the rate the lender can now earn by reinvesting the funds in the wholesale market for the remaining fixed period. If rates have fallen since you fixed, the lender incurs a funding loss and passes that cost to you. If rates have risen, no break cost applies.

Break costs are not a penalty. They reflect the lender's contractual loss. The formula includes the loan balance being discharged, the remaining days in the fixed term, the difference between your fixed rate and the current wholesale rate, and an adjustment for the time value of money. Most lenders provide an estimate on request, but the final figure is only confirmed at the time of discharge. In periods of declining rates, break costs on a substantial loan balance can exceed $10,000.

Ongoing Account Fees and Features That Affect Costs

Account-keeping fees on fixed rate investment loans range from $120 to $240 per year. Some lenders waive these fees where the total borrowing exceeds a certain threshold, often $250,000 or $500,000 across all facilities with that lender. Fixed rate loans typically allow limited extra repayments, often capped at $10,000 or $20,000 per year without triggering break costs. Redraw facilities, offset accounts and repayment flexibility are usually restricted or unavailable during a fixed period.

An investor holding a Bentleigh property on a fixed rate with a $15 monthly account fee and no offset facility pays $180 per year in ongoing charges. If rates fall and the investor decides to refinance to access better terms or equity, break costs may outweigh any rate saving. In our experience, borrowers who fix for longer than three years face greater uncertainty around exit costs, particularly where future plans involve property sales, portfolio restructuring or accessing equity for further purchases.

Lenders Mortgage Insurance on Higher LVR Investment Loans

Lenders Mortgage Insurance is required on most investment loans where the loan-to-value ratio exceeds 80 per cent. The LMI premium is calculated based on the loan amount and LVR and is a one-off cost paid at settlement. For investment property loans, LMI premiums are generally higher than for owner-occupied loans due to the elevated risk weighting applied by lenders. Some states also impose stamp duty on the LMI premium, adding further cost.

LMI premiums are not refundable if you repay the loan early, but the cost is tax-deductible for investment properties. The deduction is spread over five years or the loan term, whichever is shorter. Borrowers with sufficient deposit to avoid LMI eliminate this cost entirely, but those leveraging equity or entering the market with smaller deposits should factor the premium into their upfront budget. A borrower in Bentleigh with a 15 per cent deposit may face an LMI premium of several thousand dollars, depending on the loan amount.

Fixed Rate Loan Flexibility and Exit Planning

Fixed rate loans suit investors with stable income, predictable cash flow and no immediate plans to sell or restructure. Borrowers who anticipate portfolio growth, refinancing for rate improvements or property sales within the fixed term should weigh the certainty of a fixed rate against the flexibility of a variable rate or split structure. A split loan, with a portion fixed and a portion variable, allows partial access to redraw, offset and extra repayments while retaining some rate protection.

Investors near Bentleigh station, close to Southland and well-positioned for consistent rental demand, may value rate certainty during the first years of ownership. However, locking in for five years without considering potential break costs or loss of offset access can limit future options. The decision depends on the investor's broader property investment strategy and whether rate stability outweighs the cost of reduced flexibility.

Before committing to a fixed rate on your investment property, review all fee structures, calculate potential break costs in different rate scenarios, and consider how long you expect to hold the loan. Fixed rates protect against rate rises but come with clear trade-offs in cost and flexibility.

Call one of our team or book an appointment at a time that works for you to discuss the full cost picture for your next investment loan.

Frequently Asked Questions