Mortgage fees you're likely to pay and how to avoid them

Time poor home buyers often underestimate the total cost of buying a home. The government and lender fees involved in establishing your home loan can easily add up to 6–8% of the cost of your property.

The best way to eliminate or minimise these costs is to be aware of what’s involved in the home loan fee process and select a product with a cost-effective fee structure.

Fees vary according to the loan product you’re applying for and the features that suit your individual circumstances. It’s important for borrowers to fully understand all the features available on their loan, as well as any fees and charges that may apply.

Before we get to these fees and, more importantly, how can you avoid them? Remember, mortgage is a big debt to commit to, take our mortgage shredder challenge and find discover how much you can save using loansHub as your personal mortgage manager.

Start-up fees

Yes, some lenders still charge them and call it risk fee. The loan establishment fee is also known as an application fee or upfront fee – and it can be hefty.

Expect to pay from absolutely nothing to as much as $1,600 in start-up costs, which covers the costs of setting up the loan, conducting a valuation and producing the required legal documents.

The fee may or may not be refundable if your application is unsuccessful. It’s vital that you find out right at the start all the upfront costs your lender will be charging you.

Lenders mortgage insurance

If you’re borrowing more than 80% of the value of your property, expect to pay a one-off mortgage insurance fee. This fee is called lenders mortgage insurance (LMI), and its purpose is to protect the lender in case the borrower defaults.

Fees vary depending on the loan amount and loan to value ratio, but they generally amount to thousands of dollars.

One way you can avoid paying LMI is to save a deposit larger than 20%. The more money you have saved, the less you have to borrow.

Stamp duty

Stamp duty is a big cost. It’s charged to home buyers by state governments and is calculated on the purchase price of your property.

Some Australian states and territories offer full or partial stamp duty exemptions for first home buyers and stamp duty rates for owner-occupied and residential investment properties can also differ across states.

Extra repayment fees

Most loan products allow you to make extra repayments, however some lenders will charge an additional repayment fee if you make a lump sum repayment on your loan.

This is generally applied to fixed rates and some basic variable rate loans. If you’re in a position to make additional repayments at some point, it’s important that you ask about extra repayment fees when you’re applying for a home loan.

Redraw and offset account fees

Redraw and offset facilities are probably two of the most widely used loan features. They allow you to access additional repayments paid into your loan without needing to apply for an equity loan.

Before you even access these facility, some lenders charge you for simply activating this facility; others offer the features free of charge or it’s included in the package fee.

Some lenders will limit the number of free redraws that you can make. Once you’ve used the quota of free redraws, you can be charged a fee, typically between $10 and $50, for each extra redraw. 

Late payment fees

The late payment fee may be charged in the form of a higher interest rate on the outstanding amount or a flat fee. It may be charged immediately or after a set period of time. Needless to say, avoiding this fee is just a question of timing.

Ongoing fees

Ongoing fees are loan account keeping fees, charged at regular intervals, which range between $5 and $15 per month. A lot of non-bank lenders don’t charge them, so make sure you shop around.

These fees cover some of the lenders’ costs of making and administering loans, including producing statements and other ongoing loan documentation.

Break fees

Break cost or exit fees are charged when a borrower leaves a fixed rate loan before the end of the fixed period.

A flat fee can be charged or the penalty calculated based on the number of months the fixed rate remains to be paid.

Break costs vary between lenders, so make sure you ask about them if you’re considering a fixed rate loan.

Another hefty cost that needs to be considered is the deferred establishment fee, which is a broad and vague term that can cover a multitude of exit costs.

Other terms include early redemption charges, administration charges, sealing fees and discharge fees.

Any fee jargon like this in small print should set off alarm bells and you should ask the lender for clarification, preferably in writing, of exactly what it might cost you based on your particular situation.

Engaging the experts

While borrowers can do the legwork on their own, it can be a time-consuming exercise trawling through various offerings – trying to haggle down rates and fees or getting them waived.

Engaging a mortgage platform like loansHub can be invaluable, particularly if you want to save time and money. Backed by our smart technology, our team have the experience and knowledge about the loan application process of over 40 lenders on our panel.

Planning ahead

Planning is also the key to avoid the mortgage fee trap.

On a standard loan transfer, exit fees and establishment fees – including application fees, LMI, legal fees and valuation fees – can range from $1,000 to $10,000, which can take months or even years to recover.

While you’ll never be able to escape fees entirely, being on loansHub platform gives borrowers the advantage of changing to a better home loan without losing any money.

Enjoyed this article? Check if you Qualify for a mortgage with loansHub and discover how much you can save on your home and investment loans by using loansHub technology as your personal mortgage manager. To read more insightful articles, click here.

This article via Your Investment Property does not constitute financial advice; readers should seek independent and personalised counsel from a financial adviser that specialises in property or a tax accountant.