Familiarise yourself with all the fees and charges attached to your home loan so you can calculate just how much you’ll have to pay over the life of the loan.
Homebuyers are always looking for ways to reduce the overall cost of their home loan. One of the ways to do this is to watch out for fees, which can end up costing you thousands of dollars. The fees charged on home loans vary from lender to lender, with different fees being charged at different stages of the loan.
The fees you'll pay for a home loan can be broken into three general categories:
Many loans will come with various fees to be paid upfront. These fees will impact the overall cost of the loan, and could make a loan with an attractive headline interest rate less affordable.
Some upfront fees are charged by lenders, and can vary from one lender to the next. Watching out for these application fees and upfront charges can help you get an affordable mortgage and save money, as some loans will waive these fees. Others fees are charged by third parties such as solicitors, mortgage insurers or state or territory governments. While you may be able to avoid upfront fees from lenders, it can be harder to avoid fees charged by other parties in the mortgage process.
Here’s a look at the common upfront fees on home loans:
Also called application fees, these are fees that cover the cost of the documentation of the new mortgage. This is a one-off payment that can roughly cost between $200 - $700 depending on the loan, though many lenders waive establishment fees on some products or for special promotions.
This fee covers performing a valuation of the property you’re purchasing. This helps the lender ensure the amount you’re borrowing and the size of your deposit are appropriate. This fee can cost between $100 to $300, though some lenders offer a free valuation.
These are fees charged by the government to cover stamp duty on the mortgage. Stamp duty costs can differ depending on whether or not you're a first home buyer, what state you're in, and the cost of the property. You can use our stamp duty calculator to find out more.
The loan settlement process entails the transfer of a property’s title from the seller to the buyer. This process is known as conveyancing, and is usually handled by an accredited professional. Conveyancing fees usually run between $700 and $2,500.
The loan application process includes a contract that has to be handled by a legal team. This fee covers those legal services and the preparation of legal documents for the home loan. This can cost upwards of $100 depending on the lender.
Lenders mortgage insurance
If you borrow more than 80% of the value of your home, you will be charged for lenders mortgage insurance (LMI). This is an insurance policy that covers your lender in the event that you default on your home loan. The higher the value of the house, the higher the LMI you will have to pay on the loan. For example, using the LMI Premium Estimator, a loan of $500,000 with a $50,000 deposit will attract a fee of $8,820.
In addition to upfront fees, some loans also carry ongoing fees. These may be administrative fees, or fees for features the loan offers. Ongoing fees can make a significant difference to the overall value of a home loan.
Here’s a look at the common ongoing fees on home loans:
Monthly service fees
These fees go toward the servicing and administration of the loan. Fees may include charges for redraw facilities or any prepayment fees on a fixed rate loan. This fee is usually between $5 and $15.
Banks charge annual fees on package home loans, which usually offer a discount on the interest rate and other financial products offered by the lender. These annual fees are generally between $300 and $400.
Banks offer redraw facilities on some home loans, allowing you to withdraw any extra repayments you have made on your loan. You may be charged a small fee each time you redraw, which can cost approximately $50 per redraw.
When you discharge your home loan, there may be fees associated. Whether you’re discharging your home loan because you’re refinancing to another lender or because you’ve paid off your home loan in full, it’s important to be aware of some of the associated fees.
Here’s a look at the common exit fees associated with home loans:
Once your mortgage is paid in full, you will be required to pay discharge fees that cover the finalisation of the mortgage process and the paperwork involved in the change of title. This usually costs $350 - $500.
Fixed rate break costs
Breaking a fixed rate mortgage usually attracts a penalty which is determined by how much interest rates in the market have come down since you took up the fixed rate mortgage. These fees vary, but can run into the thousands of dollars. Here’s a look at how break fees are calculated.
How to avoid home loan fees
One of the easiest ways to reduce your mortgage cost is to keep loan fees down. Some loan fees cannot be avoided, but lenders may waive fees as part of special offers, so regularly compare home loans in the market to see what deals you may be able to make use of. Remember to compare home loans to know how often a fee is charged, so you know if you’re getting the best deal. You can check the fees tab in our reviews to do this.
Ask for discounts from your mortgage lender because you may sometimes be able to take advantage of waived application fees for a new home loan. LMI can cost you thousands of dollars, so the best way to avoid this is to ensure you putting down 20% of the home value as a down payment.
Keep in mind that if you’re refinancing home loans you may be able to negotiate with your new lender. Insiders report that it’s not uncommon for large lenders to offer rebates of up to $1,000 and discounts on interest rates, so be sure to ask. We also compare home loans which offer cash rebates when refinancing.
If the above list looks daunting, don't fear. Use our property buying cost calculator to help you add up the different fees you might be required to pay. Remember too that fees are only one part of a home loan comparison, so compare home loans so you find one with competitive fees, rates and features.