Painter's Guide to Fixed Rate Investment Loan Fees & Costs

As a painter looking to invest in real estate, understanding the fees and costs associated with fixed rate investment loans is crucial for your property investment strategy. When you're buying an investment property, these upfront and ongoing costs can significantly impact your rental yield and overall returns.

Understanding Fixed Interest Rate Investment Loans

A fixed interest rate investment loan locks in your interest rate for a specific period, typically one to five years. This provides certainty with your loan repayments, making it easier to calculate investment loan repayments and budget for your investment property portfolio.

Unlike variable interest rate loans where rates can fluctuate, fixed rates offer stability. However, this certainty often comes at a premium compared to variable options, and you'll miss out on interest rate discounts if rates fall during your fixed period.

Upfront Fees and Costs to Consider

When applying for an investment loan, several upfront costs will impact your initial investment:

• Application fees: Many lenders charge between $300-$800 for processing your investment loan application
• Valuation fees: Lenders require property valuations, costing $300-$600 for a standard house or apartment
• Legal fees: Conveyancing costs typically range from $800-$1,500
• Stamp duty: This varies by state and property value - a significant cost when buying a rental property
• Building and pest inspections: Usually $400-$800 for thorough property assessment
• Mortgage registration fees: State government charges of $100-$200

Lenders Mortgage Insurance (LMI)

If your loan to value ratio (LVR) exceeds 80%, you'll need to pay lenders mortgage insurance. LMI costs vary based on your loan amount and LVR:

• 85% LVR: Approximately 0.6% of loan amount
• 90% LVR: Approximately 1.2% of loan amount
• 95% LVR: Approximately 2.2% of loan amount

For painters buying their first investment property, LMI can add thousands to your upfront costs. However, it allows you to enter the property market sooner with a smaller deposit.

Ongoing Costs During the Loan Term

Fixed rate investment loans often include ongoing fees that affect your borrowing capacity calculations:

• Monthly or annual package fees: $10-$30 per month or $150-$395 annually
• Redraw fees: If your loan allows extra repayments, accessing these funds may cost $15-$50 per transaction
• Statement fees: Some lenders charge $5-$10 for paper statements
• Switching fees: Moving from fixed to variable rates typically costs $300-$500

Breaking Fixed Rate Loans

Break costs can be substantial if you need to exit your fixed rate early. These costs compensate the lender for interest rate differences and can range from hundreds to thousands of dollars. When research property investments, factor in potential break costs if your circumstances might change.

Comparing Investment Loan Options

Different lenders offer varying fee structures. When you access investment loan options from banks and lenders across Australia, consider:

1. Total cost comparison: Don't just compare interest rates - factor in all fees
2. Loan features: Some higher-fee loans offer valuable features like offset accounts
3. Application process efficiency: A streamlined application process can reduce holding costs
4. Flexibility: Consider your ability to make extra repayments or access redraw facilities

Property Type Considerations

Fees can vary depending on whether you're purchasing a town house, apartment, or stand alone dwelling:

• Apartments: May attract higher interest rates or additional fees due to perceived higher risk
• New properties: Some lenders offer fee waivers or discounts for new construction
• High-rise apartments: Buildings over certain heights may incur additional assessment fees

Tax Implications and Negative Gearing

Many investment loan fees are tax-deductible when buying a rental property. Loan establishment fees, ongoing account fees, and LMI premiums can often be claimed as tax deductions, supporting your negative gearing strategy.

Keep detailed records of all fees and bank statements for your accountant. This documentation is essential for maximising your tax benefits and maintaining accurate investment property records.

Planning Your Investment Strategy

As a painter, your income patterns might influence your choice between fixed and variable rates. Fixed rates provide payment certainty, which can help with budgeting around seasonal work variations common in the painting industry.

When calculating your investment loan repayments, remember that fixed rates mean your repayments won't change during the fixed period, regardless of property market conditions or Reserve Bank rate movements.

Understanding these fees and costs upfront helps you make informed decisions about your property investment loan features and overall investment strategy. Consider all costs when evaluating different investment loan options to ensure your rental property investment aligns with your financial goals.

Call one of our team or book an appointment at a time that works for you to discuss how Tradie Home Loans can help you access the right investment loan options for your painting business and property investment goals.