What Fees Apply When You Take Out a Fixed Rate Investment Loan?
Application fees, valuation fees, settlement fees and legal costs typically apply when you take out a fixed rate investment loan, though many lenders now waive the application fee. Valuation costs range from around $200 to $600 depending on the property type and location, while settlement fees sit between $150 and $400 per loan account.
In our experience, the upfront fee structure matters less than the ongoing cost implications of a fixed rate product. A magistrate purchasing an investment property on a fixed rate might pay no application fee but commit to a rate that carries a significantly higher break cost exposure than an alternative product with a $600 establishment fee.
Consider a scenario where you purchase a two-bedroom apartment as an investment property and fix the rate for three years at the time of settlement. The lender waives the application fee but charges $350 for valuation and $200 for settlement. Your solicitor invoices $1,100 for attending settlement and registering the mortgage. If you refinance or sell 18 months into the fixed term, the break cost could exceed $15,000 depending on rate movements, dwarfing the initial outlay.
How Are Break Costs on a Fixed Rate Investment Loan Calculated?
Break costs are calculated using the difference between your fixed rate and the lender's current wholesale funding cost for the remaining fixed term, applied to your outstanding loan balance. If rates have fallen since you fixed, you pay the lender's lost margin for the remaining period.
The formula is not published by most lenders, but the economic loss method is standard across Australian ADIs. If you fixed at 5.8 per cent for five years and wholesale rates fall to 4.2 per cent two years later, the lender calculates the present value of the 1.6 percentage point margin loss over the remaining three years and charges that amount as a break cost. On a loan amount of $600,000, that cost could exceed $25,000.
Most lenders provide a break cost estimate on request, but the final figure is calculated on the day you discharge or refinance. Rate lock products, which allow you to secure a rate before settlement, carry their own break cost exposure if you do not proceed with the loan. We regularly see investors underestimate this risk when they lock a rate during a cooling cycle and then delay settlement or change their purchase decision.
What Are the Ongoing Account Fees for a Fixed Rate Investment Loan?
Ongoing account fees include monthly account-keeping charges, typically between $10 and $15 per month, and annual package fees if the loan is part of a professional package. Package fees range from $300 to $400 per year and may include fee waivers on transaction accounts and credit cards.
Fixed rate investment loans generally do not offer offset accounts, so you lose the ability to reduce interest charges by parking rental income or other funds against the loan balance. For a magistrate holding an investment property that generates $28,000 in annual rent, the lost offset benefit over a three-year fixed term could exceed $3,000 in additional interest compared to a variable loan with full offset.
Some lenders charge additional fees for interest-only fixed rate investment loans, either as a higher rate or a specific product fee. The rate premium is typically between 0.1 and 0.3 percentage points, which on a loan amount of $500,000 adds $500 to $1,500 per year to the interest cost.
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What Costs Apply If You Make Extra Repayments on a Fixed Rate Investment Loan?
Most fixed rate investment loans allow additional repayments up to a specified annual limit, typically between $10,000 and $30,000, without penalty. Repayments above that threshold trigger an early repayment adjustment, calculated in the same way as a break cost.
The cap applies per calendar year or per loan anniversary, depending on the lender's terms. If you make a $40,000 lump sum repayment on a fixed rate investment loan with a $20,000 annual cap, the excess $20,000 is subject to a break cost calculation. In a falling rate environment, that cost could be several thousand dollars.
For magistrates with variable income from sitting fees or other sources, a split loan structure can preserve repayment flexibility. You might fix 60 per cent of the loan amount and leave 40 per cent on a variable rate with full offset and unlimited additional repayments. This approach is covered in more detail on our page about investment loan refinancing for lawyers.
Do Fixed Rate Investment Loans Attract Higher Lenders Mortgage Insurance Premiums?
Lenders Mortgage Insurance premiums are calculated based on the loan amount, loan-to-value ratio and borrower risk profile, not the interest rate type. A fixed rate investment loan and a variable rate investment loan with the same loan amount and LVR will attract the same LMI premium.
LMI is generally required where the LVR exceeds 80 per cent. On an investment property purchase with a 10 per cent deposit, the LMI premium typically ranges from 2 to 4 per cent of the loan amount. For a loan amount of $550,000, the premium could be between $11,000 and $22,000, capitalised into the loan or paid upfront.
Some lenders offer LMI waivers for specific professions, including legal professionals. You can read more about how those waivers apply on our page about LMI waivers for lawyers. Where a waiver applies, it applies regardless of whether you choose a fixed or variable rate.
What Fees Apply When You Refinance Out of a Fixed Rate Investment Loan?
Refinancing out of a fixed rate investment loan before the end of the fixed term typically attracts a break cost, a discharge fee from the existing lender, and establishment costs with the new lender. Discharge fees range from $150 to $400, while the new lender may charge valuation, settlement and legal fees.
The decision to refinance during a fixed term is almost entirely dependent on whether the ongoing rate saving exceeds the break cost and transaction expenses. Consider an investor holding a three-year fixed rate investment loan at 6.2 per cent with 18 months remaining on the fixed term. If variable rates have fallen and a refinance to a variable product at 5.4 per cent would save $4,000 per year in interest, the total saving over 18 months is $6,000. If the break cost is $8,000 and refinance costs are $2,000, the total cost is $10,000 and the refinance does not proceed. If the break cost is $3,000, the net benefit is $1,000 and the refinance may be viable, particularly if the ongoing variable rate saving continues beyond the original fixed term expiry.
Your existing lender is required to provide a payout figure on request, including any break cost estimate. That figure is valid for a specified period, usually 14 to 30 days. Detailed guidance on refinancing decisions is available on our page about investment loans for lawyers.
Are There Additional Costs for Splitting a Fixed Rate Investment Loan?
Splitting a loan into multiple accounts, such as one fixed and one variable, may attract an additional account fee for each split portion, typically $10 to $15 per month per account. Some lenders waive the additional fee if the loan is part of a professional package.
The benefit of splitting is flexibility. A magistrate purchasing an investment property might split the loan into a $400,000 fixed portion at 5.6 per cent for three years and a $200,000 variable portion with offset. The fixed portion provides rate certainty, while the variable portion allows unlimited extra repayments and access to offset. The cost is an additional $120 to $180 per year in account fees, which is generally offset by the retained flexibility.
Split loans also reduce break cost exposure. If you need to refinance or sell before the fixed term expires, the break cost applies only to the fixed portion. In the example above, if you sell after two years and the break cost formula produces a 4 per cent charge on the outstanding balance, the cost applies to $400,000 rather than $600,000, reducing the total break cost by around one-third.
What Rate Lock Fees Apply to Fixed Rate Investment Loans?
Rate lock fees allow you to secure a fixed rate before settlement, typically for a period of 90 to 120 days. The fee ranges from $750 to $1,200 depending on the lender and the lock period, and is usually non-refundable if you do not proceed with the loan.
If you lock a rate and settlement is delayed beyond the lock period, you may need to pay an extension fee or accept the rate available at the time of settlement. If you lock a rate and then choose not to proceed with the purchase, the rate lock fee is forfeited and you may also incur a break cost if the lender has already hedged the funding.
Rate locks are most relevant in a rising rate environment where you have exchanged contracts on an investment property and settlement is several months away. In a falling or stable rate environment, the cost of locking may exceed the benefit. We generally recommend evaluating the rate lock decision based on your settlement timeline and the current rate trajectory rather than as a default inclusion.
Call one of our team or book an appointment at a time that works for you. We work with magistrates and other legal professionals across Australia and can walk through the fee structures, break cost scenarios and rate options that apply to your specific investment property decision.
Frequently Asked Questions
What is the largest cost risk on a fixed rate investment loan?
Break costs represent the largest cost risk and are triggered if you refinance, sell or make excess repayments during the fixed term. In a falling rate environment, break costs can exceed $20,000 on a typical investment loan.
Do fixed rate investment loans have higher fees than variable rate loans?
Upfront and ongoing account fees are generally similar between fixed and variable rate investment loans. The main cost difference is that fixed rate loans typically do not offer offset accounts and carry break cost exposure if you exit early.
Can I avoid break costs by waiting until my fixed term expires?
Yes, break costs only apply if you discharge, refinance or make repayments above the annual limit before the fixed term ends. If you hold the loan until the fixed term expires, no break cost applies.
Are rate lock fees refundable if I don't proceed with the loan?
Rate lock fees are generally non-refundable if you do not proceed with the loan. Some lenders may also charge a break cost if they have already hedged the funding and you withdraw from the transaction.
Does splitting my investment loan into fixed and variable portions cost more in fees?
Splitting your loan may attract an additional monthly account fee of $10 to $15 per split portion, adding around $120 to $180 per year. Many lenders waive this fee if the loan is part of a professional package.
