The Easiest Way to Understand Variable Rate Loan Fees

What You're Actually Paying on a Variable Rate Investment Loan

A variable rate investment loan carries ongoing fees beyond the interest rate, and most of those fees are tax deductible. Loan service fees, offset account fees, redraw fees, and valuation fees all form part of the total cost of holding an investment property, and they vary across lenders by more than most paramedics expect.

Consider a paramedic with a $450,000 variable rate loan secured against a rental property. The lender charges a $395 annual loan service fee, a $10 monthly offset account fee, and a $150 fee for each additional valuation requested during the year. Over 12 months, that's $665 in fees before any redraw or discharge activity. Every dollar of that is claimable against rental income, but it still leaves less cashflow available for repayments or portfolio growth.

Interest is the largest cost. At current variable rates for investment lending, it represents the bulk of what you'll pay each month. Lenders calculate interest daily on the outstanding loan balance, and most charge it monthly in arrears. If you're on an interest-only arrangement, the entire repayment goes toward interest and fees until the principal-and-interest period begins.

How Lenders Set Their Ongoing Fees

Lenders set ongoing fees to recover the cost of administering the loan and maintaining the mortgage account. The fee structures differ across major banks, regional lenders, and non-bank lenders. A major bank might charge a monthly loan service fee of $10 to $15, while some non-bank lenders charge an annual fee or no ongoing fee at all. The absence of a service fee doesn't mean the loan is cheaper. Lenders without explicit service fees typically price the cost into the interest rate itself.

Offset account fees also vary. Some lenders include an offset facility at no additional cost on variable rate loans. Others charge $10 to $20 per month for the privilege. If you're not depositing enough into the offset to generate interest savings above the monthly fee, you're paying for a feature you're not using effectively.

Redraw fees apply when you want to access extra repayments you've made above the minimum. Some lenders don't charge for redraws on variable loans. Others charge $50 to $100 per redraw, and some cap the number of penalty-free redraws per year. If you plan to build a buffer in your loan and access it later, the redraw fee structure should influence your lender choice.

Valuation Costs and When They're Charged

A property valuation at application is generally unavoidable. The lender orders a valuation to confirm the security property is worth the amount you're borrowing against. For a standard residential property, lenders charge between $200 and $400, depending on location and complexity. That fee is typically deducted from the loan at settlement, so you don't pay it upfront.

Additional valuations may be required if you're refinancing your investment loan or applying to release equity from the property. Each new valuation incurs another fee. If you're expanding your portfolio and using equity from one property to fund the deposit on another, expect to pay for a fresh valuation each time you request a formal equity release.

Some lenders offer desktop valuations or automated valuation models for certain postcodes and property types. These cost less than a full valuation, usually between $100 and $150, but they're not always accepted for higher-risk loans or regional properties.

Discharge and Settlement Fees

When you sell the investment property or refinance to another lender, the original lender charges a discharge fee to remove the mortgage from the title. That fee sits between $300 and $500 across most lenders. It's deductible in the year you pay it, provided the loan was used to purchase or hold an income-producing property.

Some lenders also charge a settlement fee at the start of the loan, separate from the application or valuation fee. Settlement fees range from $200 to $600. This fee covers the lender's cost of preparing loan documents and registering the mortgage. It's deductible in the same year as an investment property borrowing cost.

Lenders Mortgage Insurance and How It Affects Paramedics

If you're borrowing above 80 per cent of the property value, most lenders require you to pay for Lenders Mortgage Insurance. LMI is a one-off premium calculated on the loan amount and the loan-to-value ratio. It protects the lender if you default, but it's a cost you wear.

Paramedics working for a state ambulance service or recognised employer may qualify for an LMI waiver on investment loans up to 90 per cent LVR with certain lenders. That waiver can save several thousand dollars on a loan above $400,000. Not all lenders extend LMI waivers to investment lending, so it's worth confirming eligibility before you apply.

Where LMI is payable, the premium can be added to the loan amount rather than paid upfront. That increases the total loan balance and the interest you'll pay over time. LMI premiums on investment loans are deductible over five years, or over the term of the loan if shorter than five years.

Tax Deductions for Investment Loan Fees and Costs

Every fee and cost associated with obtaining and holding an investment loan is deductible, either immediately or over a period of time. Ongoing fees such as loan service fees, offset account fees, and redraw fees are fully deductible in the year you pay them. Borrowing costs such as application fees, valuation fees, settlement fees, and legal costs related to the mortgage are deductible over five years if the total borrowing costs exceed $100, or immediately if they're $100 or less.

Interest on the loan is deductible in the year it's charged, provided the borrowed funds were used to purchase or hold the investment property and the property is rented or genuinely available for rent. If you make extra repayments into an offset account rather than directly into the loan, the interest deduction remains the same because the loan balance hasn't reduced. If you make extra repayments directly into the loan and then redraw those funds for private purposes, the interest on the redrawn amount is no longer deductible.

LMI premiums are deductible over five years for most investors, or over the loan term if shorter. If you refinance or sell the property before the five years elapse, the remaining undeducted portion can be claimed in the year of refinance or sale.

What Happens When You Switch to a Fixed Rate Later

If you start on a variable rate and later decide to lock in a fixed rate, some lenders charge a rate-lock fee. That fee is typically $600 to $750 and is deductible as a borrowing cost over five years. Once you're on a fixed rate, the loan becomes less flexible. You'll face limits on extra repayments, you may lose access to offset and redraw, and you'll be charged break costs if you refinance or repay the loan early during the fixed period.

Variable rate loans don't carry those restrictions. You can make unlimited extra repayments without penalty, and you can refinance or sell the property without break costs. For paramedics building a portfolio and relying on equity growth to fund the next purchase, that flexibility matters.

How to Compare Loan Costs Across Lenders

Interest rates get the most attention, but the total cost of a loan depends on the rate, the fees, and the features you'll actually use. A loan with a slightly higher rate and no ongoing fees might cost less over 12 months than a loan with a lower rate and $400 in annual fees, depending on the loan balance.

When comparing lenders, add up the ongoing monthly and annual fees, check whether redraw and extra repayments are penalty-free, and confirm whether an offset account is included or costs extra. Factor in any upfront costs such as application fees, valuation fees, and settlement fees. If you're eligible for an LMI waiver, confirm whether it applies to investment lending with that lender.

The comparison rate published by lenders gives a rough indication of total cost, but it assumes a $150,000 loan over 25 years, which doesn't reflect most investment scenarios. A more useful approach is to calculate the total cost over the period you expect to hold the loan, using your actual loan amount and the fees the lender will charge you.

Call one of our team or book an appointment at a time that works for you. We'll compare variable rate investment loan options across lenders that offer LMI waivers and other benefits for paramedics, and walk you through the actual fees and costs for your situation.

Frequently Asked Questions