Understanding Variable Rate Investment Loans
When buying an investment property, understanding the fees and costs associated with variable rate investment loans is crucial for making informed decisions. As Glen Waverley property investors explore investment loans options, variable interest rates offer flexibility that can benefit your property investment strategy.
Variable rate loans feature interest rates that fluctuate with market conditions. This means your investment loan repayments can change throughout the loan term, potentially offering opportunities to capitalise on falling rates whilst requiring preparation for potential increases.
Key Fees and Costs to Consider
Application and Establishment Fees
Most lenders charge application fees ranging from $300 to $1,000 when applying for an investment loan. Some financial institutions may waive these fees as part of promotional offers or for customers meeting specific criteria.
Lenders Mortgage Insurance (LMI)
When your loan to value ratio (LVR) exceeds 80%, lenders typically require LMI. This cost varies based on the loan amount and LVR, potentially ranging from several thousand to tens of thousands of dollars. For a $600,000 investment property loan with 10% deposit, LMI could cost approximately $15,000-$20,000.
Ongoing Monthly Fees
Many lenders charge monthly account keeping fees between $10-$30. While seemingly small, these accumulate to $120-$360 annually over the loan term.
Interest Rate Components
Variable interest rates for investment properties typically include:
• Base rate set by the lender
• Margin added for investment loans (usually 0.15%-0.50% above owner-occupier rates)
• Additional margins based on LVR and loan features
Lenders often provide interest rate discounts for larger loan amounts or customers with multiple products. These discounts can reduce your overall borrowing costs significantly.
Ready to get started?
Book a chat with a Finance & Mortgage Broker at Trusti Lending today.
Professional and Legal Costs
Valuation Fees
Lenders require professional property valuations, typically costing $300-$600. This ensures the property value supports the loan amount requested.
Legal and Settlement Costs
Budget $1,500-$3,000 for legal fees, searches, and settlement costs. These cover contract review, property searches, and settlement attendance.
Stamp Duty Considerations
While not a loan cost, stamp duty significantly impacts your investment. In Victoria, stamp duty on investment properties includes additional charges, making this a substantial upfront cost.
Calculating Investment Loan Repayments
Understanding how to calculate investment loan repayments helps with budgeting and cash flow planning. Variable rates mean repayments fluctuate, so consider:
• Current interest rate and potential movements
• Loan term (typically 25-30 years)
• Interest-only versus principal and interest options
• Impact of rental yield on cash flow
Investment Loan Options and Features
When you access investment loan options from banks and lenders across Australia, consider features that align with your property investment strategy:
Offset Accounts
These can reduce interest charges by offsetting savings against your loan balance. However, some lenders charge monthly fees for this feature.
Redraw Facilities
Allow access to additional repayments made, providing flexibility for your investment property portfolio management.
Interest-Only Periods
Many investment loans offer initial interest-only periods, potentially improving cash flow and supporting negative gearing strategies.
Application Process Considerations
The investment loan application requires comprehensive documentation including:
• Recent bank statements (typically 3-6 months)
• Income verification documents
• Details of the property being purchased
• Information about your first investment property or existing portfolio
Lenders assess your borrowing capacity based on the property's rental yield potential and your overall financial position. Whether you're purchasing a townhouse, apartment, or stand-alone dwelling, rental property loan approval depends on meeting serviceability requirements.
Property Market Factors
Glen Waverley's property market conditions influence both property selection and loan features. Research property options thoroughly, considering:
• Expected rental yields
• Capital growth potential
• Property management costs
• Vacancy rates in the area
These factors affect your overall investment returns and loan serviceability over time.
Working with Mortgage Brokers
Experienced mortgage brokers in Glen Waverley can help identify suitable lenders and negotiate better terms. Professional brokers understand various lenders' criteria and can suggest options that align with your investment goals.
They can also assist with the streamlined application process, ensuring all documentation is prepared correctly and submitted efficiently. This support proves valuable whether you're buying your first investment property or expanding an existing portfolio.
Variable rate investment loans offer flexibility for property investors, but understanding all associated costs ensures informed decision-making. From LMI and application fees to ongoing charges, comprehensive cost analysis supports successful property investment outcomes.
Call one of our team or request a call back to discuss your investment loan options and develop a strategy tailored to your Glen Waverley property investment goals.