The interest rate is only one part of what a variable rate investment loan costs you. Fees, loan structure and repayment type all shape the real price, and they are worth weighing up before you sign.
If you are buying your first investment property, it is normal to feel a bit overwhelmed by the numbers. This article walks through the costs you are likely to meet, so you can compare loans with a clear head. Our investment loans page covers the wider picture if you want it.
What Fees Come With a Variable Rate Investment Loan?
Lenders may charge upfront fees, ongoing fees and exit fees, and these differ from one lender to the next. Common ones include an application fee, a valuation fee, an annual or monthly package fee and a discharge fee when the loan closes.
The loan's credit contract, key facts sheet and your lender's fee schedule list the exact amounts. Ask for these in writing for every loan you are considering. A broker can also pull the fee details side by side, which saves you reading several lengthy documents.
If your borrowing goes above 80 per cent of the property's value (the loan-to-valuation ratio, or LVR), lenders mortgage insurance (LMI) is generally required. The premium is paid by you and is based on a sliding scale of the loan amount and LVR. Depending on the state, stamp duty may also apply to that premium. Each lender sets its own LVR limits, so a larger investor deposit can reduce or remove this cost.
Why a Lower Interest Rate Does Not Always Mean a Lower Cost
A loan with a lower rate can still cost more overall if its ongoing fees are high. The only reliable way to compare is to put the interest and the fees together over a year.
As an illustrative example, take a $500,000 loan. One lender offers a rate 0.25 percentage points lower than another, but charges a hypothetical $400 annual fee. In the first year, 0.25 per cent of $500,000 is about $1,250 in interest, so the lower-rate loan still comes out roughly $850 ahead after the fee. If the fee were $1,500, the cheaper-looking rate would end up costing more.
The trade-off is that package loans may bundle extras such as an offset account, with the cost covered by a package fee, so check what you are paying for. If you will not use the extras, a loan with fewer features may suit you.
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Interest Only vs Principal and Interest Repayments
An interest only loan has lower repayments in the early years, but it does not reduce your debt, and the repayments rise once principal and interest begins. Neither structure increases how much you can borrow.
Here is an illustrative example using a rate of 6.75% p.a. on a $500,000 loan over 30 years:
- Interest only repayments would be about $2,813 a month.
- Principal and interest repayments would be about $3,243 a month.
- If you took five years of interest only and then switched to principal and interest, the repayment would rise to about $3,455 a month. That is because you would be repaying the full balance over the remaining 25 years.
That jump from roughly $2,813 to $3,455 is the cost of the lower early repayments. Lenders also assess interest only loans on the shorter principal and interest period, so you may be able to borrow less than you expect. Try the loan repayment calculator or the interest only mortgage calculator with your own numbers. Our interest only loan page explains the structure in more detail.
How Interest and Other Costs Affect Your Tax
Interest on money borrowed to buy or hold a rental property is generally deductible to the extent the property is rented or available for rent. Only the interest part of a principal and interest repayment is deductible, not the principal.
Other holding costs such as council rates, insurance, property management fees and repairs can also be deductible. Negative gearing rules have changed for established properties bought after 12 May 2026, and the new treatment applies from the 2027-28 income year. Your purchase date matters, so please speak with your accountant about how this applies to you. Nothing here is a promise of any tax outcome.
An offset account lowers the balance your interest is charged on, which means you incur less interest and so have less to deduct. That is still usually a good trade for your cash flow, but it does mean the deduction shrinks. Also, if you redraw extra repayments for personal use, that part of the loan is generally no longer deductible. The reason is that deductibility follows how the borrowed money is used.
Can You Reduce Costs Later by Refinancing?
Yes, you can refinance an investment loan to a lower rate or a different structure, but it has its own costs. Fixed loans may carry break costs, and the lender's terms and conditions set out any exit costs.
So before you switch, weigh the saving against the cost of moving. A new lender will also run a fresh assessment of your income and debts. This includes testing your ability to repay at a rate at least 3.0 percentage points above the loan's rate, which is an APRA requirement for banks and similar lenders. Rental income is counted at no more than 80 per cent of expected rent under APRA's guidance, so your borrowing power may differ from what you had at purchase.
Our investment loan refinancing page explains how a review works. If you are still at the buying stage, buying your first investment property is a good place to start.
Questions to Ask Before You Choose a Loan
Before committing, ask what every fee is, when it is charged, and what you would pay to leave. Also ask whether the rate discount is ongoing and whether the loan has features you will actually use.
It also helps to ask how the lender treats rental income for a property you are yet to buy, since each lender has its own policy. These answers matter more than a headline rate. If you are unsure what to ask, that is a normal place to be, and it is exactly what a broker is there for.
Call one of our team or book an appointment at a time that works for you. We will compare variable rate investment loan options from lenders across Australia and help you see the full cost of each before you decide.
Frequently Asked Questions
What fees can a variable rate investment loan have?
Lenders may charge application, valuation, package or annual, and discharge fees. Amounts differ by lender, so ask for the fee schedule in writing before you apply.
Is a lower interest rate always cheaper?
No. Ongoing fees can cancel out a lower rate, so compare the yearly interest and fees together. Package features you will not use can also add to the cost.
Is interest on an investment loan tax deductible?
Interest on money borrowed for a rental property is generally deductible to the extent the property is rented or available for rent. Only the interest part of a repayment counts, so speak with your accountant about your situation.
When is LMI required on an investment loan?
LMI is generally required when borrowing goes above 80 per cent of the property's value. Each lender sets its own limits, and a larger deposit can reduce or avoid it.
