We’ll go through what a settlement fee is, and how much they can cost on a standard home loan.
Owner-occupier home loans with no settlement fee
The table below displays a handful of owner-occupier (OO) home loans with a $0 settlement fee, sorted by interest rate (ascending).
| Lender | Home Loan | Interest Rate | Comparison Rate* | Monthly Repayment | Repayment type | Rate Type | Offset | Redraw | Ongoing Fees | Upfront Fees | LVR | Lump Sum Repayment | Additional Repayments | Split Loan Option | Tags | Features | Link | Compare |
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
6.19% p.a. | 6.21% p.a. | $2,447 | Principal & Interest | Variable | $0 | $350 | 80% |
| ||||||||||
6.49% p.a. | 6.49% p.a. | $2,526 | Principal & Interest | Variable | $0 | $0 | 80% | |||||||||||
6.19% p.a. | 6.21% p.a. | $2,447 | Principal & Interest | Variable | $0 | $250 | 80% |
| ||||||||||
5.89% p.a. | 5.89% p.a. | $2,370 | Principal & Interest | Variable | $0 | $0 | 80% | |||||||||||
6.35% p.a. | 6.38% p.a. | $2,489 | Principal & Interest | Variable | $0 | $0 | 80% |
Investor home loans with no settlement fee
The table below displays a handful of investment home loans with a $0 settlement fee, sorted by interest rate (ascending).
| Lender | Home Loan | Interest Rate | Comparison Rate* | Monthly Repayment | Repayment type | Rate Type | Offset | Redraw | Ongoing Fees | Upfront Fees | LVR | Lump Sum Repayment | Additional Repayments | Split Loan Option | Tags | Features | Link | Compare |
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
6.14% p.a. | 6.14% p.a. | $2,434 | Principal & Interest | Variable | $0 | $0 | 80% |
What is a mortgage settlement fee?
A home loan settlement fee, also known as an early termination fee, is a one-off fee paid if you happen to pay out your home loan before the set term has expired. This usually only applies in the first five years or so, which makes it more common when people refinance: the lender will have likely budgeted for a full loan term, and you leaving is an inconvenience to their loan book. The settlement fee is designed to cover the legal costs and any other costs of this early termination to the lender.
Settlement fees are not to be confused with the following:
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Break fees: Applying mainly to fixed-rate loans, break fees are fees you have to pay for leaving the loan during that fixed period. As we explain here, these break fees can add thousands of dollars to the cost of your loan, so be very careful with these.
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Early exit fees: banned on any loan contract signed after July 2011, exit fees used to be charged to customers simply for leaving the loan at any point, and were as high as $7,000 in some cases! Some might still charge this if you have an old loan, to double-check your T’s and C’s.
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Discharge fees: These are similar to application fees, as they are a one-off fee charged at the conclusion of the loan term when you’ve paid in full. They’re intended to cover the administration costs of ending the loan agreement.
How much do settlement fees usually cost?
Just over a third of lenders happen to charge a settlement fee (35.3%), based on a review of several hundred loan products by Savings.com.au (using base assumptions of: owner occupier, variable rate, principal and interest, $400,000 loan amount). So about two-thirds of them charge $0 - not a bad ratio at all.
For those that do charge one, the average settlement fee on these home loans is about $211 ($75 across all loans compared). You’re more likely to find settlement fees in the $100-$400 range, while the big four banks currently can charge the following (as at February 2021):
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ANZ settlement fee: Up to $160
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CBA settlement fee: Up to $200
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NAB settlement fee: Up to $350
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Westpac settlement fee: Up to $350
These charges depend on the type of loan, and various other factors like the length of time left in the loan term.
Unlike settlement fees, discharge fees are more expensive and more common, costing almost $300 on average and being charged by 93% of all lenders examined. They can also cost up to $1,000 in some cases.
Why would you finish a home loan early?
Repaying your home loan before the end of the set loan term is generally a very beneficial thing to do, even if you have to pay a few hundred dollars to do so. Why? Because you could save far more in interest costs thanks to the reduced timeframe of the loan….
Can you save by exiting a loan early?
Home loan interest is generally charged on any amount left owing on the loan. If you borrowed $500,000 on a 30-year loan term, and have an unchanging 2.50% p.a. interest rate, then you’ll be charged 2.50% per annum as the loan principal slowly gets paid off. On each repayment, some of it will go towards paying interest.
This can obviously be very expensive. A $500,000 loan for 30 years on an interest rate of 2.50% p.a (principal and interest repayments), would cost $711,818 all up over that time. But over 25 years, it would cost $673,500 - nearly $40,000 less. This is because the interest charged in the first loan is being spread out over a longer time. The longer the loan, the more expensive it’s likely to be.
Use Savings.com.au’s home loan comparison calculator to see how this works.
This is why paying your home loan off early by regularly making extra contributions or lump sum repayments can save you thousands, far outweighing any settlement or discharge costs.
Can you dispute a settlement fee?
The law states that the lender cannot charge more than what you leaving is costing them as a business, so if you think what you’re being charged is too much, then by all means lodge a complaint with the lender. If you’ve switched to a new lender, then try asking them to see if they’ll cover it for you, or if they’ll waive any fees of their own in exchange.
Other home loan fees to consider
There's a multitude of home loan fees you can be charged, and we’ve only covered a few of them. Other common fees include:
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Application fees
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Ongoing fees and annual fees
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Registration fees
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Conveyancing fees and legal fees
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Government charges like stamp duty
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Potential Lenders Mortgage Insurance (LMI) fees
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Search processing fees
And many more, like missed payment fees.
Savings.com.au’s two cents
The key takeaway for minor home loan fees like settlement fees is that they can be a one-time annoyance, but you need to look at the big picture. A $200 fee or so when you pay off your loan early won’t make nearly as much of a difference as the interest rate will. You can see this difference in the table below.
|
Loan amount |
2.50% |
3.50% |
Monthly savings at 2.50% |
Total savings at 3.50% |
|
$300,000 |
$1,185.36 |
$1,347.13 |
$161.77 |
$58,238.52 |
|
$400,000 |
$1,580.48 |
$1,796.18 |
$215.7 |
$77,649.22 |
|
$500,000 |
$1,975.60 |
$2,245.22 |
$269.62 |
$97,062.85 |
|
$700,000 |
$2,765.85 |
$3,143.31 |
$377.46 |
$135,889.13 |
Calculations made via Savings.com.au's Home Loan Comparison Calculator, based on a 30-year mortgage with variable, P&I repayments.
If you’re saving more than $100,000 thanks to prudently choosing a home loan with a low interest rate, will a few hundred dollars matter? And given roughly two-thirds of home loans don’t charge settlement fees, there’s a good chance you can get both a good rate and no settlement fee.
Make the interest rate your priority, and worry about smaller fees later.
Photo by DocuSign on Unsplash
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