Understanding the Basics of Variable Rate Investment Loan Costs

If you are thinking about buying an investment property in Loganholme, the loan costs can feel like a lot to take in. The good news is that most of them fall into a few clear groups, and once you can name them, they become much easier to compare.

This article walks you through the costs of a variable rate investment loan, one step at a time. You do not need any finance background to follow along.

What Fees and Costs Come With a Variable Rate Investment Loan?

A variable rate investment loan usually has two kinds of cost: the interest you pay on the balance, and fees charged by the lender or others involved in the purchase. The interest rate can move up or down over time, which means your repayments can change too.

Fees and rates differ from lender to lender, so it is worth asking each one for a full list before you apply. Common categories to ask about include application or settlement fees, ongoing account fees, valuation fees and discharge fees. Government stamp duty is a separate cost on top of your loan, and Lenders Mortgage Insurance (LMI) may apply if you borrow more than 80 per cent of the property's value. Your broker can find the exact figures for the lenders you are considering.

How Do You Work Out Investment Loan Repayments?

Your repayment depends on the loan amount, the interest rate and the loan term. A calculator is the quickest way to test different scenarios before you commit.

As an illustration only, using an example rate of 6.75% p.a., a $500,000 loan over 30 years on principal and interest repayments comes to roughly $3,243 a month. That is an example, not a quote. Your real figure will depend on your lender, your rate and your loan size.

The interest rate on a variable loan can change, so it helps to leave some room in your budget. Lenders also do this when they assess you. Banks regulated by APRA must check that you could still afford the loan at a rate at least 3.0 percentage points higher than the loan's actual rate. Our page on borrowing capacity explains how this affects the amount you can borrow.

Interest Only or Principal and Interest: What Changes?

With an interest only loan you pay just the interest for a set period, while principal and interest repayments also reduce the loan balance. The trade-off with interest only is that your balance does not fall during that period.

One thing to be aware of is what happens when the interest only period ends. Repayments move to principal and interest over the shorter remaining term, so they usually rise. Lenders assess your borrowing power this way too, which means an interest only loan does not let you borrow more. You can read more on interest only loans here.

Let us look at an example. Take a buyer with a $500,000 loan on a 30 year term and an illustrative rate of 6.75% p.a. Interest only repayments would be about $2,813 a month. If they choose a five year interest only period, the loan then switches to principal and interest over the remaining 25 years. At the same 6.75% rate, that repayment is about $3,455 a month, which is more than the $3,243 they would have paid on a 30 year principal and interest loan from day one. The buyer, knowing this ahead of time, builds a buffer into their budget for the step up. The outcome is no nasty surprise in year six, and a clear plan for the higher repayment.

Can You Claim Investment Loan Interest on Your Tax Return?

Interest on money borrowed to buy or hold a rental property is generally deductible to the extent the property is rented or available for rent. Only the interest part of a repayment counts, not the part that pays down the loan.

This applies to both interest only and principal and interest loans. Other holding costs, such as council rates, insurance, property management fees and repairs, are also generally deductible while the property is rented or genuinely available for rent. How this affects your own tax depends on your situation, so please speak with your accountant before making decisions.

If you use an offset account, interest is charged on the loan balance less the offset balance. That means the interest you incur is lower, and so is the interest you can claim. Whether interest on redrawn funds is deductible depends on how those funds are used (ATO Taxation Ruling TR 2000/2), so redrawing money for personal use means that part of the interest is not deductible. Please confirm with the ATO or your accountant how any offset withdrawals are treated. Keep this in mind if you plan to use your loan for anything other than the property.

Do Tax Changes Affect Your Investment Loan Costs?

Tax rule changes do not alter your loan fees, but they can change how a rental loss is used, which affects your overall cost of holding a property. Please ask your accountant how the rules apply to you.

If you held a residential investment property at 7:30pm AEST on 12 May 2026, including one under contract awaiting settlement, losses continue to be deductible against other income, such as your salary, until it is sold. Eligible new builds bought after that date can also continue to be deducted against all income. From the 2027-28 income year, net rental losses on established residential properties bought after that time can only be used against other residential property income, with excess losses carried forward. Interest itself remains deductible. It is the use of the loss that changes.

Getting Help With Your Investment Loan Application in Loganholme

A broker can compare variable rate options from the lenders on their panel and explain each fee in plain language. This saves you from having to read every product sheet on your own.

If you already own a loan, you can ask for a loan health check to see how your costs stack up. If you are weighing up a loan switch, our page on investment loan refinancing covers what to ask. For a wider overview, see our investment loans page. If Loganholme is your base and you are still working towards your first purchase, our first home buyers in Loganholme page may also help.

The cost of any rate discount, fee waiver or feature depends on your lender and your situation, so ask about the trade-offs of each one. A variable rate gives you flexibility, but your repayments can rise if rates go up.

Call one of our team or book an appointment at a time that works for you. We will go through your numbers with you, step by step, and answer every question along the way.

Frequently Asked Questions