When buying an investment property in Wantirna, understanding the fees and costs associated with fixed rate investment loans is crucial for your property investment strategy. Fixed interest rate loans provide certainty in your repayments, but they come with specific costs that differ from variable interest rate options.
Understanding Fixed Rate Investment Loan Structure
A fixed interest rate investment loan locks in your Investment Loan Interest Rate for a predetermined period, typically between one to five years. This means your loan repayments remain consistent regardless of market fluctuations. For investors looking to buy a rental property, whether it's a town house, apartment, or stand alone dwelling, this predictability helps with budgeting and cash flow management.
The loan to value ratio (LVR) plays a significant role in determining your costs. Most lenders offer investment loan options with LVRs up to 80% without requiring lenders mortgage insurance (LMI). If you exceed this threshold, LMI becomes mandatory, adding substantial costs to your loan amount.
Establishment and Application Fees
When applying for an investment loan, expect to encounter several upfront fees:
• Application fees: Range from $300 to $800 depending on the lender
• Valuation fees: Typically $300 to $600 for property assessment
• Settlement fees: Usually $150 to $300 for loan processing
• Legal documentation fees: Approximately $300 to $500
The application process requires comprehensive documentation including bank statements, income verification, and details about your intended rental property loan. Your borrowing capacity assessment will determine the maximum loan amount available based on your financial position and the property's rental yield potential.
Ongoing Costs During the Fixed Period
Fixed rate investment loans typically carry higher interest rates compared to owner-occupier loans. The premium reflects the increased risk lenders associate with investment properties. However, this higher rate remains locked throughout your fixed period, protecting you from interest rate increases.
Monthly account keeping fees range from $10 to $20 per month, adding $120 to $240 annually to your investment costs. Some lenders waive these fees for larger loan amounts or as part of professional packages.
Additional Property-Related Costs
Beyond the loan itself, investing in real estate involves several other expenses:
• Stamp duty: Varies by state and property value
• Building and pest inspections: $400 to $800
• Conveyancing fees: $800 to $1,500
• Property management fees: 5% to 8% of rental income if using an agent
These costs significantly impact your first investment property purchase and should be factored into your overall property investment strategy.
Calculating Investment Loan Repayments
Calculating investment loan repayments involves considering both the principal and interest components. Fixed rates provide certainty, but remember that investment loan interest rates are typically 0.3% to 0.7% higher than owner-occupier rates.
For negative gearing benefits, the interest portion becomes tax-deductible, potentially offsetting some costs. However, consult with a tax professional to understand how this applies to your specific investment property portfolio.
Breaking Fixed Rate Periods
Fixed rate loans include break costs if you pay out the loan early or switch to variable rates during the fixed period. These costs can be substantial, sometimes reaching thousands of dollars depending on interest rate movements and remaining fixed period duration.
Lenders calculate break costs based on the difference between your fixed rate and current market rates. If rates have fallen since you fixed, expect significant break costs.
Accessing Investment Loan Options
To access Investment Loan options from banks and lenders across Australia, working with experienced mortgage brokers provides valuable insights into different lender policies and interest rate discounts. Each lender has unique criteria for investment loans, affecting both approval likelihood and pricing.
A streamlined application process through professional brokers can help identify lenders offering the most suitable terms for your investment property portfolio goals. They understand which lenders provide preferential rates for specific property types or investor profiles.
Making Informed Investment Decisions
The property market presents various opportunities, from apartments in established areas to new developments. Understanding the complete cost structure of fixed rate investment loans enables informed decision-making about your property investment strategy.
Consider how fixed rate periods align with your investment timeline. If you plan to renovate and sell quickly, variable rates might suit better despite their uncertainty. For long-term buy-and-hold strategies, fixed rates provide valuable budgeting certainty.
Remember that your investment loan application success depends on demonstrating sufficient borrowing capacity and providing comprehensive documentation. Lenders assess your ability to service the loan even during vacancy periods, so maintain conservative rental yield assumptions.
Whether you're purchasing your first investment property or expanding an existing investment property portfolio, understanding fixed rate loan fees and costs ensures you make financially sound decisions aligned with your investment objectives.
Call one of our team at Andor Financial or book an appointment at a time that works for you to discuss your investment loan options and develop a tailored property investment strategy.