Investment Property Borrowing Costs & Tax Deductions Guide

This guide explains what borrowing costs you can expect to pay when purchasing a property, how much you can expect to pay, and how borrowing expenses and tax deductions work. You can download our Investment Calculator to calculate everything you want to know about the numbers when buying an investment property and how to calculate tax deductions for investment property.

What borrowing costs will I have to pay?

From the ATO:

Borrowing expenses are expenses directly incurred in taking out a loan for the property. They include; loan establishment fees, title search fees and costs for preparing and filing mortgage documents, including mortgage broker fees and stamp duty charged on the mortgage.

Borrowing expenses also include other costs that the lender requires you to incur as a condition of them lending you the money for the property – such as the costs of obtaining a valuation or lender’s mortgage insurance if you borrow more than a certain percentage of the purchase price of the property.

The following are not borrowing expenses:

  • insurance policy premiums on a policy that provides for your loan on the property to be paid out in the event that you die or become disabled or unemployed
  • interest expenses.

Claiming a tax deduction on property borrowing expenses

If your total borrowing expenses are more than $100, the deduction is spread over five years or the term of the loan, whichever is less. If the total deductible borrowing expenses are $100 or less, they are fully deductible in the income year they are incurred.

If you repay the loan early and in less than five years, you can claim a deduction for the balance of the borrowing expenses in the year of repayment.

If you obtained the loan part way through the income year, the deduction for the first year will be apportioned according to the number of days in the year that you had the loan.

How much can I expect to pay in borrowing expenses?

Housing NSW estimates the following borrowing costs and explains what factors influence these expenses. This estimates are also relevant for all other Australian States & Territories.

Home Loan Application Fee

This is the fee charged by a bank or other lending body when you apply for a loan.
Approximate cost: $Nil – $800
There may be additional costs preparing and registering the mortgage.

Valuation Fee

Your lender usually requires a formal valuation of the property you are buying. This fee may be included in the application fee charged by your lender.
Approximate cost: $Nil – $400

Mortgage Insurance

Your lender will require you to take out mortgage insurance if you are borrowing more than a set proportion of the property’s valuation. This insurance protects the lender if you default on the loan and the property is sold for less than the outstanding loan amount. Premiums vary according to the loan amount, property price and the loan-to-value ratio. The mortgage insurance premium is a once-only payment.
Approximate cost: $300 – $12,000

Seek the advice of an tax agent or accountant to help get the most out of claiming tax deductions for investment property correctly or make an online enquiry to find out how you can get help.