- Home loan costs can include establishment fees and lenders mortgage insurance (LMI).
- You may also need to pay stamp duty and fees for conveyancing.
- Ongoing landlord expenses like maintenance and management can also add up.
The expenses involved with property investment can include:
Home loan costs
There are a few extra costs involved with getting a home loan on top of your interest bill. These can include lenders mortgage insurance, loan establishment fees, and ongoing account fees.
All or none of the below charges may apply for a given home loan - make sure you check the terms and conditions to see what fees they're charging.
Read more: Home loan fees.
Lenders mortgage insurance
Lenders mortgage insurance (LMI) is an insurance policy covering lenders against losses if the borrower can no longer meet their loan repayments. You'll generally be charged LMI if your loan-to-value ratio (LVR) is above 80%.
How much is LMI?
LMI premiums generally depend on both your LVR and how expensive your property is. For example, if you were buying a property valued at $600,000 with a $570,000 loan (95% LVR), your LMI premiums might be roughly $31,008. Borrowing the same amount on a property valued at $650,000 (roughly 88% LVR) would mean paying about $6,783 in LMI premiums.
You can estimate how much you'll need to pay in LMI (should it apply) using the Savings.com.au LMI calculator.
If you're a first home buyer, you might be able to avoid paying LMI by participating in the Government's 5% Deposit Scheme. This basically means having the Government guaranteeing up to 15% of your mortgage, potentially allowing you to borrow at up to 95% LVR and still not pay LMI. There are unlimited places on the scheme, but the property value must be below the cap for the location you're buying in.
Loan establishment fees
Also known as an application fee, an establishment fee is basically a one-off payment at the beginning of the loan to pay for processing. Not all lenders charge this and it can depend on the loan - as an illustration Westpac home loan establishment fees currently range from $0 to $600 depending on the product.
You might also be charged a valuation fee, sometimes bundled into the establishment fee.
State Governments also typically charge mortgage registration fees to register that property as a security on the home loan. Here's what you currently have to pay in each state to register or discharge a mortgage:
State | Mortgage registration fee | Discharge fee |
ACT | $178 | $178 |
NSW | $175.7 | $175.7 |
NT | $176 | $176 |
QLD | $238.14 | $238.14 |
SA | $198 | $198 |
TAS | $159.88 | $198.22 |
VIC | $125.7 using PEXA, $135.8 on paper | $125.7 using PEXA, $135.8 on paper |
WA | $216.6 | $216.6 |
Source: Respective State Government's website.
Ongoing loan fees
As well as an application fee, your home loan may also come with an ongoing fee, usually charged annually. Some lenders have different products available to customers that pay the fee, potentially with lower rates. For example, at the time of writing Commonwealth Bank charges $395 per year for its 'Wealth Package', which gives customers discounted rates among other benefits.
Home loan break costs
Lenders may charge 'exit fees' if you don't see the mortgage through to the full term - if you refinance or pay the loan off early. These charges are typically much more significant if you're breaking a fixed loan, potentially thousands of dollars, an important think to consider before you decide to fix your interest rate.
The aforementioned discharge fees may also apply once the loan is completed in order to cover the corresponding paperwork.
Property buying costs
Stamp duty
Stamp duty is a state government tax covering the cost of changing title and ownership details. It varies depending on the state the property is located, the price, and whether the property is to live in or an investment. Stamp duty is generally higher for investment properties.
You can work out the cost of stamp duty using an online calculator, such as the Savings.com.au Stamp Duty Calculator. To give you an example of how much it can cost, stamp duty for an established home valued at $800,000 in New South Wales can be over $30,000 - even if you're buying it as a residence.
Since stamp duty often needs to be paid as a lump sum upfront, it can be a major barrier to homeownership for many, which is why you need to factor it in when buying.
See also: State and territory stamp duty exemptions breakdown.
Solicitor and conveyancing fees
Conveyancing fees are paid to cover the legal transfer of the property. Depending on your lender, legal fees can range from $100 upwards, and can be as high as $1,000 in some cases. Professional conveyancers can cost between $500 to $2,500 in some cases.
These fees can often be referred to as a title transfer fee, and there might also be a 'search processing fee' of around $50 per search from the lender.
Savings.com.au’s two cents
Property investing has a lot of extra expenses, usually more compared to if you're buying a property to live in. All of this might be putting you off altogether, but you should keep in mind you may be able to offset some of this because of negative gearing.
Unlike many other countries, if you're running an investment property at a loss the Australian Government allows you to claim this as a tax deduction against your other income. It's a bit of a controversial political issue, but for now it looks like negative gearing is here to stay, which could help mitigate some of these expenses.
Property owning costs
Insurance (home and landlord)
Landlord insurance is a type of insurance policy specifically designed to protect those who own investment properties from the risks that come with renting it out. It works in conjunction with home and contents insurance with extra coverage to protect against loss or damage that come from the tenant.
This isn't always a necessary fee to pay - you can go without insurance, but it's generally advised that you have it and many lenders might require that you do in order to approve you for an investment home loan. It's common for average annual policy prices to hover between $1,000 to $2,000 in the different states, with North Queensland seeing premiums upwards of $3,000.
Read more: How does on landlord insurance work?
Council rates
Unless you don't want your bins collected, you'd better pay council rates. Also referred to as government rates, this is an annual or quarterly fee collected by local governments in order to properly maintain the local area.
These costs are usually indexed against the property's value but it can vary from state to state. Generally speaking, this could cost some thousands of dollars per year, even if you're not living in the property, so you need to factor this into your investment budget.
Contact your local or state government for more information.
Land tax
Another cost you have to pay to own a property is land tax: an annual cost levied on the owners of the land (not the property itself). This is levied by state governments, excluding the Northern Territory, so the cost can vary depending on the worth of the land.
Land tax is usually charged on the value of the land rather than the property.
Body corporate fees
Often charged quarterly, body corporate fees (sometimes called strata fees) are rates charged on apartments, units and townhouses. These fees cover the maintenance of shared areas of the property (think balconies, lifts and gardens) as well as the management of the block. You should find out the exact cost of the body corporate before buying into a particular investment property, as it can be extremely expensive.
Property manager fees
If you decide you don't want to do the day-to-day running of the property yourself you can outsource this to a property manager. A good property manager will organise mostly everything from the collection of rent, to organising and overseeing repairs and maintenance.
Depending on your state and which manager you choose, a property manager might cost around 5-12% of your weekly rental income.
Repairs and maintenance
As a landlord, you have a responsibility to ensure the property is in a livable condition for the tenants. This means in the event that something breaks (like a toilet or the oven) or something more serious happens (like the roof collapsing in a storm), you'll have to pay to get this fixed unless it's covered by insurance (you still have to make sure it gets repaired though, as per our guide on tenants' rights).
Obviously, there's no set cost for repairs and maintenance - you could, in theory, spend $0 per year. But it's generally advisable to keep a yearly budget set aside in the event you ever need to fix the place up.
Depreciation
Over time the condition of things like carpets, curtains, air-conditioners, appliances and furniture will worsen. You should factor this into your budget as you likely would have paid for these when buying the property. Out-of-date features and amenities can lower the value of the property too.
You may be able to claim some depreciation costs as a tax deduction - but not always.
Advertising for tenants
Unless you don't want any rental income, you'll need to find a tenant, which means advertising. This is usually done on real estate sites like Domain and realestate.com.au, and might a few hundred dollars.
The longer it takes to find a tenant the longer the ads stay up, and the longer they stay up the longer you'll have to pay. A good property manager should handle this for you.
Looking to improve your rental property's yield? Refinancing to a lower-rate investment home loan could help! Check out some of the market's most competitive options below:
| Lender | Home Loan | Interest Rate | Comparison Rate* | Monthly Repayment | Repayment type | Rate Type | Offset | Redraw | Ongoing Fees | Upfront Fees | Max LVR | Lump Sum Repayment | Extra Repayments | Split Loan Option | Tags | Features | Link | Compare | Promoted Product | Disclosure |
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
6.24% p.a. | 6.28% p.a. | $3,075 | Principal & Interest | Variable | $0 | $530 | 90% |
| Promoted | Disclosure | ||||||||||
6.04% p.a. | 5.95% p.a. | $3,011 | Principal & Interest | Variable | $0 | $0 | 80% |
| Promoted | Disclosure | ||||||||||
6.14% p.a. | 6.16% p.a. | $3,043 | Principal & Interest | Variable | $0 | $350 | 60% |
