Variable rate investment loans carry a range of fees and costs beyond the interest rate itself.
Most lenders charge an annual fee, apply different base rates depending on whether the loan is interest-only or principal and interest, and build in adjustments for loan size and deposit. Rate discounts are often negotiable at the time of application, but the advertised rate rarely reflects what you end up paying once all the variables are factored in. The difference between two products that look similar on paper can be thousands of dollars a year once you add up the fee structure, LMI premiums if applicable, and rate adjustments tied to your loan amount and property type.
This article walks through the fees, rate structures and cost variables you'll encounter when comparing variable rate options for residential investment property across Australia.
How Variable Rate Pricing Works for Investment Loans
Variable rate investment loans are priced at a margin above the lender's standard variable rate for owner-occupiers. That margin typically ranges from 0.10 to 0.60 percentage points depending on the lender and product, with interest-only investment loans sitting at the higher end. The base rate then adjusts down if you meet certain thresholds around loan size, LVR or relationship value with the lender.
Consider a borrower refinancing an established investment property with an outstanding loan amount of $520,000 and an LVR of 68 per cent. They apply for a variable rate interest-only product with a lender advertising a comparison rate of 6.49 per cent. After the serviceability assessment, the lender applies a 0.15 percentage point discount for the loan size, a further 0.10 percentage point discount for LVR below 70 per cent, and confirms the ongoing annual fee at $395. The effective rate lands at 6.24 per cent before fees, which works out to around $32,450 in annual interest. The $395 fee is tax-deductible, but it still lifts the true cost above the headline figure. Borrowers often compare rates in isolation without checking whether the fee structure or discount eligibility changes once their actual loan amount and deposit are entered.
Ready to get started?
Book a chat with a Finance & Mortgage Broker at Granny Flat Loans today.
Annual Fees and Package Fee Structures
Most variable rate investment loans include an ongoing annual fee charged either monthly or annually in arrears. Standalone variable investment loans typically charge between $250 and $400 per year. Package products, which bundle the investment loan with an offset facility, transaction account and fee waivers on credit cards or other products, generally charge a higher annual fee in the range of $350 to $450, though some lenders waive or reduce the package fee where the total borrowing across all loans with that lender exceeds a set threshold such as $500,000 or $750,000.
The annual fee is a claimable expense against rental income for tax purposes in the year it is charged. For investors holding multiple properties or a portfolio with interest-only construction loans for granny flats or secondary dwellings, the package fee may deliver value if it removes transaction fees, provides a rate discount and includes an offset account. If the investment loan is standalone and you do not use the bundled features, the package fee adds cost without benefit.
LMI Premiums and How They Apply to Investment Lending
Lenders mortgage insurance is required by most lenders when the LVR exceeds 80 per cent. LMI premiums are calculated on a sliding scale based on the loan amount and LVR, and are typically higher for investment loans than for owner-occupier loans at the same LVR. The premium is paid upfront, either at settlement or capitalised into the loan amount.
For a $450,000 investment loan with a 10 per cent deposit, the LVR is 90 per cent and the LMI premium may range from around $15,000 to $18,000 depending on the insurer and lender. If the borrower chooses to capitalise that premium, the total loan amount becomes $468,000 and interest accrues on the full amount from day one. LMI protects the lender, not the borrower. The premium is not refundable if the loan is refinanced or discharged early, though some insurers allow a partial premium waiver if you refinance to a different product with the same lender within two years.
Investors using equity from an existing property to fund a deposit can often avoid LMI by keeping the new investment loan below 80 per cent LVR. Where that is not possible, comparing LMI quotes across lenders is worthwhile because premiums vary and some lenders use different insurers or calculation methods.
Rate Discounts Linked to Loan Size and LVR
Variable rate discounts for investment loans are typically tiered by loan amount and LVR. A loan amount above $500,000 or $750,000 may attract an additional 0.10 to 0.20 percentage point discount. LVR below 70 per cent or 60 per cent can trigger a similar discount. Some lenders also offer introductory discounts for the first year or two, reverting to a higher base rate once the introductory period ends.
In our experience, borrowers refinancing or topping up an investment loan for a granny flat or second dwelling often cross a threshold that delivers a rate discount they were not previously eligible for, particularly where the top-up brings the total loan amount above $500,000. Where the additional borrowing pushes the LVR above 80 per cent, however, the rate discount may be offset by a higher base rate for loans in the 80 to 90 per cent LVR band, plus the cost of LMI.
Interest-Only Versus Principal and Interest Rate Structures
Variable rate investment loans offered on an interest-only basis are priced higher than principal and interest loans with the same lender. The margin is generally 0.20 to 0.40 percentage points. Interest-only periods are typically approved for five years at a time, after which the loan reverts to principal and interest unless the borrower applies to extend the interest-only term.
Interest-only repayments reduce the monthly cash outflow, which can be helpful for investors holding properties with vacancy periods or those seeking to maximise tax deductions in the early years of ownership. The trade-off is a higher interest rate and no reduction in the loan balance during the interest-only period. Once the loan reverts to principal and interest, the repayment amount increases because the remaining principal must be repaid over a shorter term.
For investors planning to sell the property within a few years, or those who intend to make lump sum principal repayments from other income sources, interest-only lending may align with the investment strategy. For longer-term holds where rental income is intended to progressively reduce the loan balance, principal and interest variable rate products typically result in lower total interest costs over the life of the loan.
Ongoing Fees During the Loan Term
Beyond the annual loan fee, other ongoing costs may include monthly account-keeping fees if the loan is not held in a package, valuation fees if the lender requires a revaluation for an LVR reduction or equity release, and settlement fees if you refinance or discharge the loan. Most lenders do not charge ongoing account-keeping fees on residential investment loans held in a package or on standalone variable rate loans where the annual fee is already applied.
Discharge fees range from $300 to $450 depending on the lender and cover the administrative cost of releasing the mortgage and liaising with the borrower's solicitor or conveyancer. Refinancing to a different lender will incur a discharge fee with the outgoing lender, plus application and settlement fees with the new lender. Some lenders offer refinance rebates or fee waivers to offset part of that cost, particularly where the loan amount is above $500,000.
Application and Settlement Fees
Most lenders charge an upfront application fee, settlement fee or both on new investment loans. Application fees typically range from $400 to $700, though many lenders waive this fee during promotional periods or for borrowers meeting certain criteria such as loan amount above $500,000 or existing customer status. Settlement fees range from $200 to $450 and cover the cost of registering the mortgage and liaising with the conveyancer.
Where the investment property is purchased at auction or under a short settlement timeline, borrowers should confirm whether the lender charges an expedited or rush processing fee. These fees are less common than they were a few years ago, but some lenders still apply them where settlement is required within 14 days of application.
Break Costs and Exit Fees on Variable Rate Loans
Variable rate investment loans do not carry break costs because the rate floats with the lender's standard variable rate and is not locked for a fixed term. Some lenders previously charged exit fees or early repayment fees on variable rate loans, but exit fees on residential home loans, including investment loans regulated under the National Consumer Credit Protection Act, were banned from 1 July 2011 for loans entered into after that date.
If you hold an older investment loan originated before July 2011, confirm with your lender whether an exit fee still applies before refinancing or making a large lump sum repayment. For loans entered into after that date, you can repay the loan in full or refinance at any time without penalty, subject only to the discharge fee.
Tax Deductibility of Fees and Costs
Interest, ongoing annual fees, LMI premiums, valuation fees and loan establishment fees incurred on borrowings used to acquire or hold a residential rental property are generally deductible against assessable rental income, subject to the new negative gearing rules that apply from the 2027-28 income year for established investment properties acquired after 12 May 2026. For properties held at that date or eligible new builds, all borrowing costs remain fully deductible against other income.
LMI premiums paid upfront can be claimed as a deduction in the income year they are incurred, or amortised over the lesser of five years or the period of the loan. Most investors claim the full premium in the year it is paid where they have sufficient rental or other income to absorb the deduction. Application fees, settlement fees, discharge fees and legal costs related to the loan are deductible in the year they are incurred. Offset account fees, redraw fees and annual package fees are also deductible.
You cannot claim a deduction for the portion of any borrowing cost that relates to private use of the property or to capital improvements that do not produce assessable income. Where a loan is used partly for investment purposes and partly for private purposes, only the portion attributable to the investment is deductible. Your accountant or tax adviser can confirm the allocation.
Comparing Total Cost Across Products
When comparing variable rate investment loan products, the interest rate alone does not capture the true cost. Two loans with the same advertised rate may differ by several thousand dollars a year once fees, LMI, discount eligibility and rate structures are included.
A practical approach is to request a loan illustration or cost estimate from each lender based on your actual loan amount, deposit and property details. The illustration should include the effective interest rate after discounts, the annual fee, any package fee, the LMI premium if applicable, and the ongoing repayment amount. For loans where the interest-only period is shorter than five years or the rate reverts after an introductory period, ask for the repayment amount and rate after reversion.
If you are refinancing, compare the total cost over the period you expect to hold the loan, factoring in discharge fees with your current lender and application and settlement fees with the new lender. A lower rate with higher upfront fees may cost more over a two-year hold than a slightly higher rate with lower fees. If you are purchasing, factor in the opportunity cost of capitalising LMI versus paying it upfront from savings.
Call one of our team or book an appointment at a time that works for you. We work with lenders across Australia and can walk you through the fee structures, discount thresholds and rate options that apply to your loan amount, deposit and investment strategy, whether you are purchasing an established property, building a granny flat on investment land, or refinancing to release equity for your next purchase.
Frequently Asked Questions
What ongoing fees apply to a variable rate investment loan?
Most variable rate investment loans charge an annual fee ranging from $250 to $450, depending on whether the loan is standalone or part of a package. Package products may include offset accounts and fee waivers on other banking products. The annual fee is tax-deductible against rental income.
How is LMI calculated on an investment loan?
LMI premiums are calculated on a sliding scale based on the loan amount and LVR, and are typically higher for investment loans than owner-occupier loans at the same LVR. For a 90 per cent LVR investment loan of $450,000, the premium may range from $15,000 to $18,000 depending on the lender and insurer.
Are investment loan fees tax-deductible?
Interest, annual fees, LMI premiums, application fees, settlement fees and valuation fees incurred on borrowings used to acquire or hold a rental property are generally deductible against assessable rental income. For properties held before 12 May 2026 or eligible new builds, all borrowing costs remain fully deductible against other income.
Do variable rate investment loans have break costs?
Variable rate investment loans do not carry break costs because the rate floats with the lender's standard variable rate. Exit fees on residential investment loans regulated under the National Consumer Credit Protection Act were banned from 1 July 2011 for new loans entered into after that date.
How do rate discounts work on investment loans?
Rate discounts are typically tiered by loan amount and LVR. Loan amounts above $500,000 or $750,000 may attract a 0.10 to 0.20 percentage point discount, and LVR below 70 per cent or 60 per cent can trigger a similar discount. Some lenders also offer introductory discounts that revert after one or two years.
