Do You Know What Loan Costs Actually Add Up To?

Your first investment property loan comes with more than just interest.

Upfront application fees, valuation charges, ongoing account-keeping costs, and exit fees can add thousands to the true cost of borrowing. For first-time investors, these costs often sit outside the headline rate comparison and catch people off guard at settlement or during the life of the loan.

Application and Establishment Fees on Investment Loans

Most lenders charge an upfront application fee to process your loan, typically between $300 and $600. Some lenders waive this fee as part of a package or promotion, while others bundle it into the loan amount. If you choose to capitalise the fee rather than pay it at settlement, you'll pay interest on that amount for the life of the loan. On a 30-year loan, a $600 fee can cost closer to $1,200 once interest compounds.

Consider a buyer setting up their first investment loan on a unit in Clayton. The lender charges a $500 application fee and a $200 settlement fee. The buyer adds both to the loan amount rather than paying upfront. Over 30 years at current variable rates, that $700 becomes approximately $1,400 in total repayments. It's not a deal-breaker, but it's also not disclosed in the advertised rate.

Valuation Costs and LMI

Every lender requires a valuation before approving your loan. Valuation fees range from $200 to $400 depending on property type and location. You pay this cost upfront, and it's non-refundable even if the loan doesn't proceed. If you're borrowing above 80% of the property value, you'll also pay Lenders Mortgage Insurance, which protects the lender if you default. LMI can run into thousands of dollars depending on your deposit size and loan amount.

For an investor buying in Mount Waverley with a 10% deposit, LMI might cost $8,000 to $12,000. Some lenders allow you to add LMI to the loan balance, but again, you'll pay interest on that amount for decades unless you refinance or make extra repayments.

Ongoing Account-Keeping and Package Fees

Many lenders charge a monthly account-keeping fee, usually between $10 and $15. That's $120 to $180 per year, or $3,600 to $5,400 over a 30-year loan term. Some lenders bundle loans into a package that includes an offset account, redraw facility, and fee waivers for a single annual package fee, typically $300 to $400. Whether a package saves you money depends on which features you'll actually use.

If you're setting up an offset account to park rental income and reduce interest, the package fee might be worthwhile. If you're taking an interest-only loan and won't use redraw or offset features, you're paying for functionality you don't need.

Discharge and Exit Fees

When you repay your loan in full or refinance to another lender, your current lender charges a discharge fee to release the mortgage over the property. Discharge fees typically range from $150 to $400. If you're on a fixed rate and you exit before the fixed period ends, you'll also pay break costs, which can run into thousands depending on how much rates have moved since you locked in.

In a scenario where an investor in Oakleigh refinances two years into a three-year fixed term, the lender calculates break costs based on the difference between the fixed rate and current wholesale rates. If rates have dropped, the break cost might be $3,000 or more. If rates have risen, the break cost could be zero. The lender provides an estimate before you proceed, but it's a cost that doesn't appear in any upfront comparison.

Comparing Total Loan Costs Across Lenders

When you compare loan options, focus on the comparison rate rather than the advertised rate alone. The comparison rate includes most standard fees and gives a more accurate picture of the loan's true cost over a set period. It won't include LMI, break costs, or optional package fees, but it's a closer approximation than the headline rate.

Two lenders might offer the same variable rate, but one charges a $395 annual package fee while the other charges $10 per month with no package. Over time, the second option costs less unless the package includes features that genuinely reduce your interest bill.

When you apply for a home loan, ask for a breakdown of every fee that applies to your situation. Not all fees are negotiable, but application fees and package fees sometimes are, particularly if you're borrowing a larger amount or bringing multiple loans to the same lender.

If you're based in Melbourne and weighing up loan structures for your first investment, call one of our team or book an appointment at a time that works for you. We'll walk through the full cost structure for each option so you know exactly what you're committing to before you sign.

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