When buying an investment property in Newport or surrounding areas, understanding the fees and costs associated with variable interest rate investment loans is crucial for your property investment strategy. Variable rate loans offer flexibility but come with various charges that can impact your overall borrowing costs and rental yield calculations.
Understanding Variable Rate Investment Loans
A variable interest rate investment loan means your interest rate can change during the loan term based on market conditions and lender decisions. Unlike fixed interest rate options, variable rates fluctuate, affecting your loan repayments and overall investment returns. This flexibility allows you to benefit from rate decreases but also exposes you to potential increases.
When applying for an investment loan, lenders assess your borrowing capacity differently than for owner-occupied properties. Investment property loans typically require higher deposits and have stricter lending criteria.
Key Fees Associated with Variable Rate Investment Loans
Application Fees
Most lenders charge an application fee when you submit your investment loan application. These fees typically range from $300 to $800 and cover the cost of processing your application and assessing your financial position.
Lenders Mortgage Insurance (LMI)
When your loan to value ratio (LVR) exceeds 80%, you'll likely need to pay lenders mortgage insurance. For investment properties, LMI costs are generally higher than for owner-occupied homes. The premium depends on your loan amount and LVR, potentially costing thousands of dollars.
Valuation Fees
Lenders require professional property valuations to assess the investment property's worth. These fees range from $300 to $600 for standard residential properties like apartments, townhouses, or stand-alone dwellings.
Legal and Settlement Costs
Conveyancing fees, settlement costs, and legal documentation typically cost between $1,500 to $3,000. These cover the legal transfer of property ownership and loan documentation.
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Ongoing Costs to Consider
Monthly Account Keeping Fees
Many variable rate investment loans include monthly account keeping fees ranging from $10 to $15 per month. Over the loan term, these seemingly small amounts add up significantly.
Interest Rate Variations
While not a fee, variable rates mean your repayments change with interest rate movements. When calculating investment loan repayments, factor in potential rate increases to ensure your rental income can cover higher payments.
Annual Package Fees
Some lenders offer investment loan packages with multiple products but charge annual package fees between $300 to $400. These packages might provide interest rate discounts or waived fees on other banking products.
State-Specific Costs in Victoria
Stamp Duty
As a Newport-based investor, you'll pay Victorian stamp duty rates for investment properties. These rates are higher than for owner-occupied properties and vary based on the property purchase price.
Land Tax
Victorian investment property owners may be liable for annual land tax, depending on the property's value and your total Victorian land holdings.
Factors Affecting Your Investment Loan Costs
Loan to Value Ratio Impact
Higher LVRs result in increased costs through LMI and potentially higher interest rates. Many investors aim for 80% LVR or lower to avoid LMI costs.
Property Type Considerations
Lenders view different property types differently. Apartments might have higher interest rates than houses, while some lenders have restrictions on certain property types or locations.
Your Financial Profile
Your income, existing debts, credit history, and experience with investment properties influence the interest rates and fees lenders offer. First investment property buyers often face higher costs than experienced property investors with established investment property portfolios.
Accessing Investment Loan Options
Working with experienced mortgage brokers helps you access investment loan options from banks and lenders across Australia. Different lenders have varying fee structures, interest rates, and loan features. A thorough comparison can save thousands of dollars over your loan term.
Some lenders offer streamlined application processes for investment loans, potentially reducing application timeframes and associated costs. Others provide specific investment loan features like interest-only repayment options or redraw facilities.
Making Informed Investment Decisions
Before committing to any variable rate investment loan, research property markets thoroughly and understand how fees and costs affect your overall investment returns. Consider how negative gearing benefits might offset some loan costs and factor all expenses into your property investment strategy.
Bank statements, income verification, and detailed financial assessments form part of the application process. Having these documents prepared can expedite your application and potentially access better rates or fee waivers.
Understanding variable rate investment loan fees and costs enables informed decision-making when building your property portfolio. Professional advice ensures you select loan products that align with your investment goals and financial circumstances.
Call one of our team at Capra Financial Group or book an appointment at a time that works for you. Our experienced Newport mortgage brokers can help you access suitable investment loan options and navigate the application process effectively.