When taking out a home loan with your chosen lender, there are many associated fees. It is important you understand these home loan fees to ensure you avoid the ones which are unnecessary and reduce the overall cost of your home loan.
Types of home loan fees charged by lenders
When applying for your home loan, you will encounter a range of costs you perhaps did not know about. Some of these costs are upfront, some are ongoing and some you will encounter as you end your home loan.
- Establishment fees – Establishment fees are a once-off charge at the beginning of your home loan application. This fee will typically cost between $150-$700 and will differ based on the sum of your home loan.
- Valuation fees – Valuation fees pay for your property’s assessment by a third-party valuer. Depending on the location of your property, this fee will usually cost approximately $100-$300. The purpose of this valuation is to determine if the loan amount and sum of your down payment match with the property’s value.
- Conveyancing fees – These fees are for the transfer of a property’s title from the seller to you. It is a vital part of settling a loan and prices are normally assessed by the conveyancer.
- Legal costs – The legal costs for home loans will vary on a case-by-case basis but will cover the services relating to the preparation and maintenance of legal documents regarding your home loan. Ideally documents which must be signed by all parties should be managed by a legal team.
- Lenders Mortgage Insurance (LMI) – If you borrow more than 80% of the property’s value for your home loan, the lender will charge you LMI. LMI protects the lender from risk in a scenario where the borrower is unable to pay back the home loan.
In addition to the above up-front costs of your home loan, you may also incur some ongoing costs which cover certain features of your loan.
- Monthly service fee – Covers the administration and servicing associated with your home loan. This is charged on a monthly basis and can cost from $5-$15.
- Annual fees – If your home loan is tied with special discounts under a package home loan, you may be charged an annual fee by your lender. This can range from $300-$400.
- Repayment charges – Additional early repayments on your loan may incur extra charges depending on your agreement with your lender.
- Redraw fees – Paying additional repayments and using a redraw facility to withdraw them will potentially result in a fee. Some lenders offer this for free while others may charge as much as $50.
- Late payment costs – Making your repayments beyond the cut-off date may incur a charge specific to each lender.
- Switching fee – A switching fee will be assessed when switching between a fixed interest rate and a variable interest rate and vice versa.
- Discharge costs – If you opt to end your agreement with your lender due to loan settlement, refinancing your home loan, or switching to a different lender, you will be charged a discharge fee.
Upon the settlement of your home loan, you may encounter the following costs:
- Discharge fee – A discharge fee will be assessed once you have fully paid off your mortgage. This is to cover the final completion of your home loan and ensure the transfer of your certificate of title into your hands.
- Home loan early exit fee – If you opt to pay off your loan’s principal balance early, you will likely be charged an early exit fee. This fee will cover any loss incurred by the lender.
Types of government-assessed home loan fees
In addition to the home loan fees applied by your lender, you will also be liable to pay stamp duty and mortgage registration fees by your state government.
A stamp duty fee is assessed by your state government and is a tax that is payable when you purchase a property in Australia. The stamp duty cost is based on the selling price of a property and is calculated by the relevant state government. If you’re a first homebuyer, you may be eligible for a concession.
Furthermore, you will also be assessed a once-off mortgage registration fee that typically costs between $145-$187. This fee is charged by your state’s Land Titles Office to register the mortgage on the property’s certificate of title.
How do I find the best home loan fees?
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Look for promotions from lenders
In order to reduce your home loan fees and limit the cost of your mortgage, you should keep a close eye out for promotions from lenders. Lenders will often waive an array of fees to gain you as a customer so be proactive and explore the home loan market regularly.
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Contact your lender directly
In addition, lenders are sometimes willing to be flexible and may offer discounts on certain fees upon request. Don’t be afraid to contact your lender directly and ask what they can do for you, to ease your financial concerns on your home loan fees. Banks and mortgage lenders will go to great lengths to get your business. Be willing to negotiate with your lender and try to have as many fees waived or reduced as possible.
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Don't let the short-term benefits get the better of you
While some lenders might appeal to you with their low upfront fees, this will often be countered with a higher interest rate. Don’t be fooled by the short-term benefits but instead look at the long-term costs and make sure you do your calculations.
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Choose a home loan without annual fees
While an annual fee of $300-$400 might not seem significant at first, it adds up quickly and could equate to as much as $12,000 in annual fees over the course of a 30-year home loan.
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Do your research and don’t be startled by potential fees
Importantly, do not let the daunting amount of potential home loan fees get the better of you. Different lenders charge different fees, and not all will be applicable to you and your individual home loan situation. Therefore, it is necessary to do your research and know the mortgage product you’re applying for back to front in order to reduce your home loan’s fees.
