Buying a home using a mortgage enables many aspiring homeowners to get the keys to their dream earlier than if they had to save up for the full sale price. It’s faster of course if you’ve got unbridled access to the bank of mum and dad, but since that is not a luxury available to everyone, many of us turn to home loan lenders.
When you borrow money, you’re not only committing to pay back the principal amount and interest, you also agree to pay the additional fees. These out-of-pocket expenses are not something to be shrugged off. They add up and can easily put a significant dent in your budget.
So before you sign on to any home loan offer, make sure you review the terms in the PDS (product disclosure statement) carefully to understand all the fees and charges that apply.
Why do home loan lenders charge fees?
Home loan lenders charge various fees to cover the costs they incur in processing the loan, including administrative tasks, credit checks, and legal services. These extra charges can also be associated with additional features (e.g. redraw facility) and to encourage or discourage certain behaviours (e.g. paying off the loan early, making late payments).
Fees are also a means for lenders to make a profit while at the same time being able to offer a low interest rate. Although they are structured to balance the costs of loan administration and maintain profitability, fees can also be influenced by regulatory standards and market competition.
What are the fees associated with a home loan?
When shopping around for home loans, you can use the comparison rate as a quick indicator of whether a particular product comes with hefty fees.
Some lenders may try to reel you in with a lower advertised rate, but don’t bite too fast! Make sure to check the comparison rate as it represents both the interest rate and all the add-on fees that come with your loan. Fees altogether can be quite expensive, hence choosing the one with a higher rate but fewer fees can potentially save you a couple thousand dollars.
Home loan fees are categorised into different types, depending on when they apply. Some fees are one-off charges while others occur throughout the life of the loan. Let’s dive in to understand what they mean.
| Lender | Home Loan | Interest Rate | Comparison Rate* | Monthly Repayment | Repayment type | Rate Type | Offset | Redraw | Ongoing Fees | Upfront Fees | Max LVR | Lump Sum Repayment | Additional Repayments | Split Loan Option | Tags | Features | Link | Compare | Promoted Product | Disclosure |
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
5.69% p.a. | 6.16% p.a. | $2,899 | Principal & Interest | Fixed | $0 | $530 | 90% |
| Disclosure | |||||||||||
5.99% p.a. | 5.90% p.a. | $2,995 | Principal & Interest | Variable | $0 | $0 | 80% |
| Promoted | Disclosure | ||||||||||
6.04% p.a. | 6.06% p.a. | $3,011 | Principal & Interest | Variable | $0 | $530 | 90% |
| Promoted | Disclosure |
Upfront fees
These are the fees you pay at the start and even before your mortgage begins. The majority of upfront fees are charged one-off and used to cover the costs involved in underwriting and setting up the loan. There is no one-size-fits-all for upfront costs. Each lender may have different fee structures, and some may waive these fees altogether as a way to attract customers.
Application fees
An application fee, also known as establishment or set-up fee, is a one-time payment lenders charge to process your loan. Generally, application fees cover administrative tasks like preparing documents and conducting credit checks and other assessments.
Depending on your chosen provider and loan product, application fees can range between $150 and $800. In many cases though, lenders waive this fee. However, it is usually non-refundable even if your home loan application is ultimately declined.
Valuation fees
Before handing you the funds, lenders conduct a valuation to assess how much the property you intend to buy actually worth. This helps them confirm whether your property can be used as security for your mortgage in the event of a forced sale, and to calculate the loan-to-value ratio (LVR) which determines the terms and conditions of your loan.
The amount varies depending on the type and location. It typically ranges from $200 to $600. More complex property valuation in remote locations or highly variable areas often costs more. However, many lenders have moved to a virtual or online valuation to save on these costs.
Conveyancing fees
Conveyancing is the legal process of transferring a property’s ownership from the seller to the buyer. It is typically handled by a conveyancer or solicitor who conducts the documentation, title search, and other necessary steps to ensure that you obtain a clear title to the property.
Conveyancing fees are normally assessed based on the property value and complexity of the transaction, but they usually cost between $700 and $2,500. Note this fee is not attached to the home loan but is a separate cost of establishing everything.
Legal fees
When you apply for a mortgage, your lender will hire legal professionals to ensure the transaction is legally binding. The fees covering the services involved in the preparation of legal documents will then be passed on to you. Depending on the lender, this can cost $100 or more.
Government charges
Buying a property subjects you to several fees charged by the government. Again, these charges are not associated directly with a home loan, but are separate start-up fees. These include stamp duty, the tax levied on your purchase; a transfer fee for changing the title from the seller to the buyer; and mortgage registration fee, which covers the registration of the mortgage on the property title (so future buyers will know if there are any claims on the home).
Government charges vary per state and territory. In the case of stamp duty, the cost is structured based on the property type and value. Meanwhile, you can check the transfer and mortgage registration fees per jurisdiction in the table below (applicable in FY 2023/24).
|
Transfer fee ($500k home) |
Mortgage registration fee |
|
|
ACT |
$446* |
$166 |
|
NSW |
$165* |
$165 |
|
VIC |
$1,266 |
$119 |
|
QLD |
$1,572 |
$224 |
|
SA |
$4,643 |
$187 |
|
WA |
$293 |
$203 |
|
NT |
$165* |
$165 |
|
TAS |
$233* |
$152 |
Data source: State government websites | *flat rate applies
Better yet, check InfoChoice’s Stamp Duty Calculator to work out how much you will pay in government charges.
Lenders mortgage insurance
If your deposit is smaller than 20% of the total price of the home you’re financing with the loan (meaning the loan-to-value ratio or LVR is over 80%), this one-off premium might set you back thousands of dollars.
Lenders mortgage insurance (LMI) is an insurance policy that covers the lender against losses in the event that a borrower defaults on the loan and the property is sold for less than the outstanding loan amount.
The cost of the LMI varies based on factors including the loan size, deposit amount, and the insurer used. As a rule of thumb, the larger the amount and smaller the deposit, the higher the LMI. For example, a 5% deposit on a $700,000 property could pay around $31,000 in LMI if paid upfront; whereas a 15% deposit leads to about $5,100 in LMI.
While commonly thought of as an upfront fee, LMI can also be baked into the home loan, meaning you pay off the amount owing over time – with interest, of course.
A simple way to avoid paying this is by increasing your deposit to at least 20%. You can also look for lenders offering loans with LMI discounts or waivers, although those might come with higher interest rates.
Ongoing fees
Your regular repayments often carry various ongoing fees that cover account management costs as well as the provision of additional features and services such as redraw facilities. Some lenders waive ongoing fees during a promotion period or won’t charge them at all.
Monthly service fees
Lenders typically pass on to customers the expenses incurred for the administration and servicing of their loans. Others don’t charge monthly fees as a way to entice customers and instead pull in the funds to cover operational costs through slightly higher interest rates.
If your loan product comes with service fees, they could add between $5 and $15 to your monthly repayments.
Annual package fees
If you’ve taken out a packaged home loan that comes with bundled discounts on interest rates and other financial products like a credit card, you may be charged this fee in a single instalment every year throughout the life of your mortgage.
Annual package fees are essentially payments for the convenience and savings gained from bundled financial services, and they usually range from $300 to $400. Westpac, for instance, offers a home loan package that costs $395 per year.
Redraw fees
Home loans with a redraw feature may charge you a fee each time you withdraw any extra payments you’ve made and are deposited into this facility. Lenders typically charge a nominal amount of up to around $50 per redraw, while others won’t charge at all (advertised as fee-free redraws).
Offset account fees
Now if your home loan has an offset account linked to it, this fee may be added on top of your monthly repayments. Unlike redraw fees that are charged whenever a redraw is made, offset account fees apply even if you don’t make withdrawals; rather it’s charged to cover the cost of maintaining the account.
Monthly offset account fees typically range between $10 and $20. Some lenders don’t charge a fee at all although the interest rate is usually higher than a no-frills home loan.
Late payment fees
Paying your monthly mortgage past the due date or within a specified grace period thereafter may incur a late payment fee. So if you’re not timely with your payments, you may have to fork out an additional $15 to $50. For instance, CommBank and ANZ charge $20, while Westpac imposes a $15 late payment fee.
Exit fees
Ending your loan, whether by paying it in full (at the end of the mortgage or earlier) or by refinancing, may incur exit fees to cover the administrative work involved in closing the loan as well as the potential losses in interest revenue due to the early termination of the mortgage.
Discharge fees
When you finally finish paying off your mortgage, you may want to hold off from popping the champagne because you may be required to pay a discharge fee before you and your lender part ways. The administrative costs of ending the loan are typically passed on to borrowers through these fees, also known as termination or settlement fees.
Some lenders may not charge this fee, but those that do demand a few couple hundred dollars before handing your title deeds. For example, CommBank, NAB, and Westpac each charge $350 in discharge fees, while ANZ charges $160 at the time of writing.
Fixed-rate break costs
Break costs are charged if you terminate or refinance your fixed-rate home loan before its scheduled end.
Breaking a fixed-rate term early can result in a financial loss from anticipated interest income for the lender, especially if current market rates have fallen since the loan’s origination. That loss will then be passed on to you.
To calculate how much you will be charged, lenders take into consideration your loan’s outstanding balance, remaining term, and the difference between the original and current interest rates. That means you won’t know how much the break cost is unless you consult with your lender.
Break costs could potentially be tens of thousands of dollars, depending on the size of your mortgage, so before taking on a fixed-rate product, you’ll want to know you can stick with it for the term’s duration.
Early termination fees
If you terminated a home loan (either fixed or variable-rate) signed before 1 July 2011, you may also face an early termination fee or deferred establishment fee. But since it was banned under the Gillard Government, some lenders have removed this prohibitive fee and are now disallowed to charge it to borrowers.
Switching fees
Making changes to the terms of your home loan (or refinancing), like switching from a fixed rate to a variable interest rate (or vice versa) or altering your loan structure, could potentially cost you more than a couple hundred dollars in switching fees, depending on the lender.
But if you’re doing it right, the savings you might get if you refinance – or ‘re-pricing’ if sticking with your lender – will more than make up for the fees and charges you pay when switching.
Other fees
These are the other fees you may encounter when you carry out certain actions concerning your home loan.
Home loan portability fees
This fee will apply if you transfer an existing mortgage from one property to another, pending your lender’s approval. Home loan portability, also known as home loan substitution or substitution of security, lets you keep all the features of your current home loan without changing anything (i.e. interest rate, balance, fees, term, and features).
Swapping the security on your current loan can cost you between $150 and $300. CommBank for instance, charges $300 per security substitution.
Extra repayment fees
Exceeding the limits of the extra repayments you’re allowed to make annually might subject you to extra repayment fees. This typically applies to home loans on fixed terms to deter borrowers from ending their fixed-rate home loans earlier than scheduled. The average cost varies depending on the lender and loan product.
How to minimise home loan fees
The best way to minimise the fees you pay with your mortgage is by selecting the lender and the right loan product that suits your needs. If you don’t need a linked offset account, a bundled credit card, or any added features that come with fees, then you may be better off choosing a standard home loan without the bells and whistles.
Further, don’t jump on the first product you see. Compare home loan options to find which ones offer waived fees. A handy first step is to check if the comparison rate is not too much higher than the advertised rate – however this doesn’t always tell the whole story.
If you already have a home loan, negotiating with lenders and checking reviews can also potentially reveal opportunities for reduced fees or more favourable deals. They would most likely rather keep you as a loyal customer than have you jump ship over a couple hundred dollars.
More importantly, if you’re taking out a loan, make sure that you understand all fees that come with it and are mindful of your transactions (i.e. paying on time, preventing excess repayment) to avoid unexpected charges.
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