Fixed rate investment loans cost more upfront than most ADF members expect.
Application fees, valuation charges, legal costs and break fees all add up before you even settle on the property. Some costs hit you at application, others at settlement, and one large fee only appears if you need to exit the loan before the fixed term ends. Knowing what you will pay before you apply gives you time to adjust your deposit or structure the loan differently.
What You Pay at Application
Most lenders charge an application fee for investment loans at the time you submit your application. The fee typically sits between $300 and $1,000 depending on the lender and the loan amount. Some lenders waive the application fee if you are refinancing or if you hold other products with the institution. The application fee is payable whether your loan is approved or not, so if you apply to multiple lenders to compare rates, you will pay the fee each time.
A valuation fee is charged separately to confirm the property's market value. Lenders require a registered valuer to inspect the property and provide a written report before they will approve the loan. Valuation fees range from $200 to $600 depending on property type and location. In areas like Singleton, where the valuer may need to travel from a regional hub, the fee is often at the higher end of that range. The valuation is ordered by the lender but paid by you, usually at the same time as the application fee or shortly after.
Legal and Settlement Charges
Legal fees cover the cost of preparing and registering the mortgage over the property. Most lenders require their own solicitor or settlement agent to act on the mortgage, and they pass that cost to you at settlement. Legal fees vary by state but generally sit between $800 and $1,500. In New South Wales, you also pay for registration of the mortgage with Land Registry Services, which costs around $150 to $200 depending on the loan amount.
If you are purchasing the property through a trust or company structure, legal fees are typically higher because the documentation is more involved. ADF members buying their first investment property in Singleton often purchase in their own name to keep settlement costs lower, then consider restructuring once they have built equity.
What Lenders Mortgage Insurance Costs on Investment Loans
Lenders Mortgage Insurance is required by most lenders when your deposit is less than 20 per cent of the property value. LMI protects the lender, not you, but you pay the premium. For investment loans, LMI premiums are calculated on a sliding scale based on the loan amount and the loan-to-value ratio. At 90 per cent LVR, LMI on a $400,000 investment loan can be $12,000 to $18,000 depending on the lender.
Some lenders offer LMI waivers for ADF members on owner-occupied loans, but those waivers do not extend to investment loans. If you are stationed at Singleton and planning to purchase an investment property while you rent locally, you will pay full LMI if your deposit is below 20 per cent. The premium can be paid upfront at settlement or capitalised into the loan amount, which increases your total borrowing and your ongoing repayments.
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How Fixed Rate Break Costs Are Calculated
A break cost is a fee charged by the lender if you repay your fixed rate loan in full before the fixed term ends. The fee compensates the lender for the difference between the rate they locked in for you and the rate they can now earn by lending that money elsewhere. Break costs are calculated using the remaining fixed term, the remaining loan balance, and the difference between your fixed rate and the current wholesale rate for the same term.
Consider an ADF member who fixed a $500,000 investment loan at 5.5 per cent for five years in early 2024. Two years into the fixed term, they are posted interstate and decide to sell the Singleton investment property. At the time of sale, the lender's current three-year fixed rate has dropped to 4.8 per cent. The lender calculates the break cost based on the 0.7 per cent difference applied to the remaining loan balance over the remaining three years. In this scenario, the break cost could be $10,000 or more depending on the exact calculation method used by the lender. Some lenders use a discounted cash flow model that increases the break cost further if wholesale rates have fallen sharply.
Break costs do not apply if you sell the property and repay the loan at the end of the fixed term, or if you switch from fixed to variable at the end of the fixed period. They only apply if you break the contract early by refinancing, selling, or making a large lump sum repayment that exceeds the lender's allowable extra repayment limit during the fixed period.
Ongoing Account Fees During the Fixed Period
Most investment loans charge a monthly or annual account-keeping fee. Monthly fees range from $10 to $15, which adds up to $120 to $180 per year. Some lenders charge an annual fee instead, typically $200 to $400, which is debited from your loan account once per year. The fee applies whether your loan is fixed or variable, but during a fixed term you cannot switch to a different loan product to avoid the fee without triggering a break cost.
If you hold multiple investment loans with the same lender, some institutions will charge the account fee on each loan separately, while others apply a single fee per customer. Ask your broker to confirm the fee structure before you apply, particularly if you are planning to expand your property portfolio over the next few years.
What You Pay to Refinance Before the Fixed Term Ends
Refinancing during a fixed term triggers a break cost, and you also pay a second set of application, valuation and legal fees to the new lender. If you are refinancing a $450,000 investment loan two years into a five-year fixed term, and the break cost is $8,000, you will also pay around $1,200 to $2,000 in fees to the new lender. That brings the total cost of refinancing to $9,200 to $10,000 before you factor in any rate benefit from the new loan.
Some ADF members refinance their investment loan when they are posted to a new base and need to access equity for a second property purchase. In that situation, the cost of refinancing is weighed against the benefit of accessing equity without selling the first property. If the equity release allows you to avoid LMI on the second purchase, the refinancing cost may be justified. If you are refinancing purely to access a lower rate, run the numbers carefully. A 0.3 per cent rate reduction saves you around $1,350 per year on a $450,000 loan, which means it would take more than seven years to recover the $10,000 refinancing cost.
Fees That Apply When You Switch from Interest-Only to Principal and Interest
Most investment loans offer an interest-only period of up to five years, after which the loan automatically converts to principal and interest repayments. Some lenders do not charge a fee for this conversion because it is built into the loan contract. Others charge a loan variation fee of $150 to $300 when the repayment type changes.
If you want to switch from interest-only to principal and interest before the interest-only period ends, some lenders treat this as a loan variation and charge the fee. Others allow the change at no cost. Check the product disclosure statement or ask your broker before you apply, particularly if you expect your income to increase during the fixed term and want the flexibility to start paying down the principal sooner.
What Discharge Fees Cost When You Sell the Property
A discharge fee is charged by the lender when you repay the loan in full and the mortgage is removed from the property title. The fee covers the lender's administrative cost and typically ranges from $300 to $500. You pay the discharge fee at settlement when you sell the property, and it is deducted from your sale proceeds.
If you are selling an investment property at the end of a fixed term, you pay the discharge fee but no break cost. If you sell during the fixed term, you pay both the discharge fee and the break cost. Some lenders also charge a settlement processing fee of $100 to $200 on top of the discharge fee, so the total cost to exit the loan can be $400 to $700 even if no break cost applies.
How Rate Lock Fees Work on Fixed Investment Loans
A rate lock fee allows you to secure a fixed interest rate for 90 to 120 days before your loan settles. This is useful if you have exchanged contracts on a property and you are concerned that rates will increase before settlement. Rate lock fees are typically $500 to $1,000 depending on the lender and the lock period. If rates increase during the lock period, you benefit from the lower rate. If rates fall, you are locked into the higher rate unless the lender offers a rate ratchet feature, which allows you to step down to the lower rate if it becomes available before settlement.
Not all lenders offer rate locks on investment loans, and some that do will only offer the feature on loans above a certain threshold, such as $250,000 or $500,000. ADF members purchasing investment property in Singleton with settlement dates three or four months out may find a rate lock useful if market commentary suggests rates are about to rise, but the fee adds to your upfront costs and the benefit is uncertain.
When you fix your investment loan rate, map out every fee before you commit. Application and valuation fees hit you first, legal and LMI costs arrive at settlement, and break costs only appear if you need to exit early. Each cost is manageable on its own, but together they can reduce your deposit buffer or force you to borrow more than you planned. If you are weighing up investment loan refinancing or considering a switch to variable after your current fixed term expires, factor in the fees before you move. Call one of our team or book an appointment at a time that works for you.
Frequently Asked Questions
Do I pay LMI on an investment loan if my deposit is less than 20 per cent?
Yes, most lenders require LMI on investment loans when your deposit is below 20 per cent of the property value. LMI waivers available to ADF members on owner-occupied loans do not extend to investment loans.
How much is a break cost if I sell my investment property during a fixed term?
Break costs are calculated using the remaining loan balance, the remaining fixed term, and the difference between your fixed rate and the lender's current wholesale rate. On a $500,000 loan with three years remaining, the break cost can exceed $10,000 if rates have fallen since you fixed.
Can I avoid paying a break cost if I refinance at the end of the fixed period?
Yes, break costs only apply if you repay, refinance or make large extra repayments during the fixed term. If you wait until the fixed period ends, you can switch lenders or loan products without penalty.
What fees do I pay at settlement on a fixed rate investment loan?
At settlement you pay legal fees for mortgage preparation and registration, which typically total $800 to $1,500 in New South Wales. You also pay LMI if your deposit is below 20 per cent, and any upfront application or valuation fees if not already paid.
Does a rate lock fee guarantee my fixed rate if I am waiting for settlement?
A rate lock fee secures your fixed rate for 90 to 120 days before settlement. If rates rise during that period, you benefit from the locked rate. If rates fall, you remain locked in unless the lender offers a rate ratchet feature.
