Navigating home loan fees

author-avatar By on November 12,2019
Navigating home loan fees

Photo by Matthias Jordan on Unsplash

A guide to all the common fees you could encounter when taking out a home loan.

Cost of a mortgage loan

Buying a home will typically be the most expensive purchase of your life. There are a range of costs involved, but the biggest ones will typically be the cost of the home itself, plus the costs of the home loan you used to make the purchase.

In many cases, the cost of the home loan can add up over time to being close to the price you paid for the home. A lot of this comes down to interest costs (which will typically add up to hundreds of thousands over the life of the loan), but a fair chunk may also come from home loan fees.     

Some lenders have a fondness for fees, and if you’re unlucky enough to be stung with even a few of them, they can seriously add up!

Many often don’t even realise they have to pay a fee until it comes round, as fees are typically hidden deep within the terms and conditions. To avoid this happening to you, it’s important to check a loan’s PDS (product disclosure statement) to get a full breakdown of the fees involved before you apply. Also, you can use a home loan’s comparison rate as a quick general indicator of whether it comes with large fees or not. For example, if a loan has a low advertised interest rate, but a significantly higher comparison rate, there’s a good chance it has some pretty big fees. 

We’ve put together a comprehensive guide to home loan fees so you can have a better idea of what you have to pay and when.

Looking for a low variable rate home loan? The table below displays some of the lowest interest rates on the market.

Provider Ad rate
p.a.
Comp rate*
p.a.
Monthly
repayments
 
Purchase or Refi, P&I 80% Smart Home Loan 2.88% 2.90% $1,660 More details
Discount Variable 80% 3.07% 3.12% $1,702 More details
Base Variable Rate Special P&I 3.20% 3.20% $1,730 More details
Ad rate
p.a.
Comp rate*
p.a.
Monthly
repayments
Purchase or Refi, P&I 80% Smart Home Loan
2.88% 2.90% $1,660
More details
Discount Variable 80%
3.07% 3.12% $1,702
More details
Base Variable Rate Special P&I
3.20% 3.20% $1,730
More details

Base criteria of: a $400,000 loan amount, variable, principal and interest (P&I) home loans with an LVR (loan-to-value) ratio of at least 80%. Introductory rate products were not considered for selection. Monthly repayments were calculated based on the selected products’ advertised rates, applied to a $400,000 loan with a 30-year loan term. Rates correct as at 2 December 2019. View disclaimer.

Upfront fees

Upfront fees are costs that you have to pay at the start of your mortgage. It’s rare that you’ll be approved for a home loan without being subject to various upfront fees. However, some lenders will waive some upfront costs as a way of attracting customers.

These fees can include: 

Application fees

A home loan application fee is a one time fee charged at the beginning of your home loan application for the processing and documentation of your loan. They can also be referred to as an establishment, start-up or set-up fee.

Depending on the amount you plan to borrow and from which lender, application fees typically range from $150 to $700. They’re also the most commonly waived fee and are usually non-refundable. As a reference point, all four of the big four charges an application fee of up to $600 and all four carry a product where this fee is waived. 

Property valuation fees 

A valuation fee is charged to cover the cost of your property being valued by the lender. It’s used as a safeguard for you and the lender to ensure the amount being borrowed and your deposit is appropriate for the property being purchased.

It’s a one time fee, usually ranging from $100 to $300 depending on your type of property, location and value.

For example, homes that are rural, remote or above $1 million may incur a higher valuation fee than a stock-standard urban house. 

Conveyancing fees

Conveyancing is the process of transferring ownership of a legal title of land from the seller to the new owner (aka you). This is handled by a conveyancer or solicitor and will result in a fee (are you sensing a theme here?). 

Conveyancing fees are dependent on whether you’re paying a fixed fee or a sliding fee based on your property’s price, and typically range from $500 to $2,200. 

Government charges

Not to be outdone by lenders, governments will charge you a fee to cover stamp duty on your home loan. In basic terms, stamp duty is a state government tax and covers the cost of changing title and ownership details. 

These fees will vary based on the following and is typically paid upon settlement of the loan:

  • Whether you’re a first home buyer
  • The cost of your property
  • What state you live in

As an example, an established NSW home valued at $500,000 would see stamp duty costs in excess of $17,000, based on a stamp duty calculator. 

Although you can use online stamp duty calculators as a guide, you may need a solicitor to calculate the official cost of stamp duty on your property. 

Legal fees

It’s nigh impossible to go through buying a home with a mortgage without a solicitor and/or a conveyancer. 

These parties require payment for their services, services which typically include the arrangement of various legal documents like settlement agreements and contracts. 

Depending on your lender, legal fees can range from $100 upwards. 

Mortgage registration fees

Mortgage registration fees are charged by state and territory governments to register the physical property as the security on the home loan. This allows any future buyers to check any claims that exist on the home.

Mortgage registration fees are paid when the loan is established or discharged (or in Tasmania’s case, both!)

Check out the mortgage registration fee for each state and territory in the table below. 

StateFee
ACT $145
NSW $141.69
NT $145
QLD $187
SA $163
TAS $135.09 to register, $167.48 to discharge
VIC $116.80
WA $171.20

Source: each State Government’s website. 

Search processing fees

Search processing fees are paid to your lender to perform a title search or any other searches related to your application. This is generally around $50, per search. 

Lenders mortgage insurance

Lenders mortgage insurance (LMI) is an insurance policy which covers lenders against losses they may incur in the event that the borrower can no longer pay loan repayments, also known as defaulting on the loan. 

Typically you’ll be exempt from LMI if your deposit on the property is greater than 20% (80% LVR), however, there are exceptions between lenders and products.

It’s generally advised you look to avoid LMI as it can be extremely costly; for example, if you only pay a 10% deposit on a $400,000 property, you could pay close to $7,000 in LMI. But there are times when it can be worth paying LMI, like when you think property prices are going to surge and want to get into the market as soon as possible. 

This is an extremely short explanation on an often complex topic so check out our full breakdown of LMI here.


Ongoing fees

In addition to your monthly repayments on your home loan, you could be subject to various ongoing fees, depending on your lender and product. Some lenders will waive ongoing fees as part of promotions, while others will charge you for interacting with your loan. Others won’t charge ongoing fees at all. 

Check out our full breakdown of the following ongoing fees below:

Monthly service fee

A monthly service fee covers the cost of the service and administration of your home loan. It’s charged monthly (obviously) and typically ranges from $5 to $15. 

Annual fees

If you’ve taken out a mortgage which is part of a package deal, you’ll more-often-than-not be subject to annual fees, typically due to reduced interest rates or other promotional discounts. Many home loans waive these fees for a length of time (often the first year) to attract customers. 

They generally range from $300 to $400, which can be a worthwhile expense based on the money saved in the deal. For example, Westpac has a home loan with an annual package fee of $395.

Redraw fees

Some lenders offer home loans with a redraw feature, whereby you can withdraw any extra payments you’ve made over the life of your loan. 

You might have to pay a fee for each time you redraw, however some lenders will waive this as part of a promotion. Others don’t charge redraw fees at all, advertising ‘fee-free redraws’. 

The fee is usually around $50 per redraw. 

Late payment fees

A late payment fee may be charged if you don’t pay your minimum monthly repayment amount by the due date. 

There can sometimes be leeway but it’s generally around $20. For example, CommBank’s late payment fee is $20 which is charged until the outstanding amount is paid; however, there is a five business day grace period after the due date, to allow for extenuating circumstances. 

If you’re in financial difficulty and feel like you won’t make your next repayment, ask your bank for a freeze or contact their financial hardship team (which they should have). A customer who pays one late fee is still more valuable to them than one who switches to another lender or defaults on the loan, so you might find they make special arrangements for you. 

Switching fees

If you’re looking to fix your mortgage or want to switch to a variable rate then you could be subject to a switching fee, while some other fees can apply when refinancing

Refinancing costs and fees will vary between lenders but if you’re doing it right, the savings from refinancing should far outweigh the costs of switching. 

Use our home loan calculator to see how much you can save by switching to a cheaper home loan.

Portability fee

Home loan portability is a feature that allows you to keep the same home loan product but change the security (the property). Utilising this feature will, of course, cost a fee in most cases which differs between lenders but is typically around $200. 


Exit fees

When you get to the end of your home loan, whether that’s 25 years down the track, or due to refinancing, there may be costs involved in ending the process.

The last thing you want when you’re finally rid of your loan is to be sprung with an unnecessary or unknown loan, so check out all the potential home loan exit fees below: 

Home loan exit fees

Home loan exit fees on new loans were banned on 1 July 2011 under the Gillard government, but can still be charged on loans signed before this date, although some lenders have removed them. Since home loans can last for as long as 30 years (and sometimes longer), there’s a good chance some older loans still have exit fees attached. 

If you’re looking to refinance, double-check with your lender if you’ll be subject to exit fees, as these can be costly and vary quite a bit. 

Discharge fees

When you’ve paid off your loan in full, your lender may require you to pay a discharge fee to cover the cost of the completion of the process and corresponding paperwork. Also known as termination or settlement fees, these fees can range from $150 to $400.

As an example, check out the discharge fees for the big four banks below. 

BankDischarge fee
ANZ $160
CBA $350
NAB $350
Westpac $350

Information accurate as at October 2019. 

Early exit fees

Early exit fees may be charged by your lender if you fully pay off your mortgage within a period specified by the lender, usually the first five years of the loan. 

They’re also known as early termination, deferred establishment, deferred application or early discharge fees, effectively making them the P Diddy of home loan fees. 

The law states these fees are limited to the recovery of a credit provider’s loss caused by the early exit; which could still amount to a large sum. You won’t know what the early exit fee is until your lender tells you, so try to avoid them. 

Fixed-rate break costs

Fixed-rate break costs include the two afore-mentioned fees – a discharge fee and an early exit fee. Actions that break a fixed-rate contract are switching to a different product, exceeding the extra repayment limit and repaying the loan in full. 

It’s usually not in your best interest to break your fixed contract, as the benefits rarely outweigh the hefty costs. 


Savings.com.au two cents 

It can be hard to find a home loan that will not pay a single fee at any point in time. Even when lenders advertise a lack of fees, they usually only focus on the main fees associated with home loans, like upfront or ongoing fees. More uncommon fees like late payment fees and discharge fees can still apply even with the cheapest loans. 

But in Australia’s current low-interest-rate environment, lenders are increasingly waiving fees as part of promotions in efforts to gain more customers. Doing your research and having a good understanding of what you want from your home loan is an easy way to avoid unnecessary fees, and to find the best product for you. You can do this by using comparison rates as a general guide when comparing home loans, as well as having a thorough look through a loan’s PDS so that you’re aware of all the potential fees involved before you apply.


Disclaimers

The entire market was not considered in selecting the above products. Rather, a cut-down portion of the market has been considered which includes retail products from at least the big four banks, the top 10 customer-owned institutions and Australia’s larger non-banks:

  • The big four banks are: ANZ, CBA, NAB and Westpac
  • The top 10 customer-owned Institutions are the ten largest mutual banks, credit unions and building societies in Australia, ranked by assets under management in November 2019. They are (in descending order): Credit Union Australia, Newcastle Permanent, Heritage Bank, Peoples’ Choice Credit Union, Teachers Mutual Bank, Greater Bank, IMB Bank, Beyond Bank, Bank Australia and P&N Bank.
  • The larger non-bank lenders are those who (in 2019) has more than $9 billion in Australian funded loans and advances. These groups are: Resimac, Pepper, Liberty and Firstmac.

In the interests of full disclosure, Savings.com.au and loans.com.au are part of the Firstmac Group. To read about how Savings.com.au manages potential conflicts of interest, along with how we get paid, please click through onto the web site links.

*Comparison rate includes both the interest rate and the fees and charges relating to a loan, combined into a single percentage figure. The interest rate per annum is based on a loan credit of $150,000 and a loan term of 25 years.

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Alex joined Savings.com.au in 2019. He is passionate about providing Australians with the information and tools needed to make them financially stable for their futures.

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