In this article:
Not all fees and charges are common to all home loans. How much a lender charges can vary from one lender to the next. Sometimes lenders will waive specific fees to attract customers. Other times there might be a higher fee for setting up the mortgage but lower ongoing fees. And to really confuse, the same fee might be called a different name by different lenders.
Either way, be prepared to encounter enough fees and charges to make a hole in your savings. How much of a dent will depend on how fee-heavy your choice of home loan is. While it may appear at first glance to be light on fees, a closer inspection of the product booklet or disclosure statement might show that the charges are there but just haven’t been advertised.
For help comparing the true cost of home loan products, your Yellow Brick Road Mortgage Broker is a great resource. It’s our job to live and breathe loans, so we know all about the rates, fees and features of mortgages from dozens of different lenders. We can tell you which of the following fees will apply to your home loan.
Also know by names like establishment fees and up-front fees, these are one-off administrative fees charged for setting up your loan. Lenders may waive these fees to attract your business.
Property valuation fees
We have you covered on all stages of your property journey
Property valuation fees
Your lender needs to know that the mortgage doesn’t exceed the property value, which is why they obtain independent valuations rather than going off the list price. Some mortgage products include free property valuations.
Lenders Mortgage Insurance
Lenders Mortgage Insurance (LMI) is charged when you borrow more than 80% of the property’s purchase price. Its purpose is to protect the lender should the borrower default on their loan.
The rate can vary substantially between lenders depending on their criteria and the insurance provider they use. It also varies depending on your loan size and Loan to Value Ratio (LVR), but you can expect the cost to be hefty. As an example, a property valued at $800,000 with a $40,000 deposit could have an LMI premium of around $30,000 [Genworth estimate calculator].
You may have the option to pay the LMI premium as a lump sum payment when your loan settles, but the cost is more commonly added to the loan’s principal. If you’re a first home buyer and eligible for the First Home Loan Deposit Scheme, this entitles you to take out a home loan with a 5% deposit without needing to pay LMI.
Other ways to avoid LMI include saving up a 20% deposit with genuine savings or taking out a family guarantee. Some lenders offer LMI waivers or reductions to high-net-worth individuals with secure full-time employment, stable housing history, decent credit rating and proof of genuine savings.
Monthly or annual fees
The lender passes on the cost of loan administration as a monthly or yearly fee. Sometimes lenders waive these fees for the first year for individual loan promotions.
Break fees are sometimes called different names like early repayment adjustment fees. They are charged when you break the term of your mortgage contract, such as making a repayment higher than the amount allowed, paying off a fixed-rate loan early, defaulting or refinancing. The formula for calculating break fees varies from one lender to the next, but you can expect it to be in the thousands of dollars.
Late payment fees
These are charged if you don’t meet your monthly repayment commitment on time. You may be able to have this retracted if it’s a once-off error but not if you make a habit of late payments.
If your loan has a redraw feature, some lenders charge a fee each time you redraw. Others charge no fee at all.
Rate lock fee
If you decide to lock in a fixed rate for your home loan, this fee ensures there won’t be any rate increases before making your first repayment.
A portability fee is charged when you transfer a loan to a new property. It’s only applicable if you have portability as a feature; otherwise, you will need to refinance your loan when you move.
This applies when you pay off your loan in full to cover the work involved in finalising the paperwork.