Familiarise yourself with all the fees and charges attached to your home loan so that 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.
Home loans come with many upfront fees during the application phase, such as set-up or establishment fees, legal fees, stamp duty and Lender’s Mortgage Insurance (LMI). Then there are fees charged during your loan term, such as monthly fees, which go toward the maintenance of your loan account, and fees for ongoing services like redraw and offset facilities. If you exit your loan, depending on when you opened it and what type of loan it is, other fees may include break costs and discharge fees.
Application fees and other upfront fees
Any home loan application will be accompanied by various fees, each with its own unique purpose. 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. Here’s a look at the common application fees on home loans:
|Establishment fees||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.|
|Monthly service fees||These fees go toward the servicing and administration of the of the loan. Fees may include charges for redraw facilities or any prepayment fees on a fixed rate loan.||Between $5 - $15.|
|Annual fee||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.||Generally between $300 - $400.|
|Government fees||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.||Varies. You can use our stamp duty calculator to find out more.|
|Valuation fees||Property valuation of an existing home is covered by this particular fee.||Between $100 - $300.|
|Legal fees||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.|
|Settlement fees||This fee caters for finalising the entire loan process and is usually charged once you have paid your mortgage in full.||Generally around $200.|
|Lender's Mortgage Insurance (LMI)||If you borrow more than 80% of the value of your home from a bank (for a full doc loan), they will charge you this one-off fee that acts as security should you be unable to clear your 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.|
Home loan feature fees
There are certain fees charged on a home loan to cover the cost of services you receive from your lender. These include:
|Redraw fees||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.|
|ATM withdrawal fees||If you have a package loan with a credit facility, you might incur ATM withdrawal fees whenever you make a withdrawal from the credit facility linked to your home loan. This can sometimes be avoided by withdrawing from specific ATM networks.||Varies.|
|Switching costs||If you decide to switch from your current loan account to another with the same lender, you have to take into account that you will be charged switching fees.||Varies.|
Fees that may be charged when you leave a home loan
Refinancing your home loan may be a great way to obtain better service, lower interest rates or lower fees. However, switching mortgage providers may cost you certain fees from your current lender, including:
|Discharge fees||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.||Generally between $350 - $500.|
|Early exit fees||These fees protect the creditor from losses caused by early mortgage termination. The Australian government abolished these fees for new loans applied for after 2011 as they were used by banks to restrict mortgage refinancing with other banks.||Varies.|
|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.||Varies. Break costs can run into the thousands.|
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 downpayment.
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.