Hidden fee traps and how you can avoid them

Hidden fee traps and how you can avoid them

One of the most common ways we lose money is through paying avoidable fees.

In June 2017, the Reserve Bank of Australia (RBA) released data that showed Aussies are paying $4.41 billion a year in banking fees, with many of the highest charges relating to home loans and credit cards.

So how can we avoid getting stung by unnecessary fees?

RateCity spoke to Sydney mother of two, Natalie, about how she found herself falling into her bank's fee traps, and how she’s choosing to break the cycle.

It all adds up

RateCity research found that the fees collected from credit cards in the 12 months leading to June 2017 totalled $1.56 billion – an increase of $48 million from 2015. Home loan fees also hit $1.24 billion, an increase of $5 million from the year before.

Whether it’s through ATM fees or choosing credit cards with annual fees, we’re all guilty of paying them and we’re not always aware they exist.

Natalie certainly wasn’t when we spoke to her.

“I was quite surprised as I always thought I was rather thorough when looking at those things,” she said. 

“I guess I didn’t look at all of the fine print. I found out about a few fees didn’t even know existed!”

Natalie found that on her credit card she was currently paying an annual fee and rewards package fee.

She was also at risk of paying the following fees on her transaction account:

  • Monthly fees;
  • Dishonor fees;
  • Periodical-payment-not-made fees;
  • Account overdrawn fees;
  • Overseas ATM cash withdrawal fees; and
  • Foreign transaction fees for online shopping.

When Natalie first took out her home loan she paid a progress draw set up fee and fixed rate lock in fee (0.10 per cent of her loan amount). She also makes ongoing payments due to a package fee on her mortgage.

“I wasn’t really made aware of these fees when I joined,” said Natalie

“They talk to you about the main fees, like withdraw fees and ATM fees, but when it comes to something like a fee to access my credit card rewards program, I was definitely not aware.

“And it adds up to hundreds of dollars,” said Natalie.

How can everyday Aussies like Natalie break the fee cycle? 

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Natalie’s story is not unique, especially when banks are making $4.41 billion dollars a year off banking fees.

Some fees may be unavoidable, however, there are a few ways that you can beat the banks and reduce your overall payments.

  1. Credit card annual fees

There is really no reason to be paying an annual fee on your credit card as there are over 30 on the market that don’t charge you. Also, keep an eye on rewards cards as they often attract the biggest fees.

Average fee: $130

Highest fee: $1,200

  1. Ongoing home loan fees

The process of taking out a home loan can be extremely taxing and often confusing. Unfortuantely, home loans are full of hidden fees so before you sign on the dotted line make sure you ask your lender for a complete run down on all the fees you’ll be expected to pay over the life of the loan. This way you avoid nasty surprises and budget accordingly. There are almost 1980 home loan products that don’t have an annual fee, so it pays to compare.

Average annual fee: $339

Highest annual fee: $849

Home loans without annual fees:

 

 

  1. Transaction account fees

Sometimes lenders will charge a monthly account fee that is small enough that you may not notice you’re paying it. There are plenty of zero fee options available so find out if you’re paying more than you should – consider switching.

Average fee: $55 a year

Highest fee: $420 a year

  1. Superannuation fees 

All super funds incur some sort of fee but the amount you pay can vary wildly from just over $300 a year up to over $1,100 a year, based on a $50,000 investment. While fees should not be the deciding factor when choosing a fund, if they are excessive they can eat into any returns you may be earning. Look at the funds medium to long term performance in addition to the fees to see if you are getting value for money.

Average fee: $631

Highest fee: $1,100

  1. ATM fees 

It goes without saying that you should stop using ATMs outside of your bank’s network. If possible, make ongoing goals of avoiding them for a month, six months and then a year. Plan cash withdrawals ahead for the week, or even withdraw cash at your local Woolworths when you do a grocery trip. By saving $2 a week on ATM transactions throughout the year you could be $104 richer.

ATM savings: $104 a year.

  1. Car loan fees

Car loan application fees can be exorbitant. On average, they are just under $100 but can be as high as $410, so doing a bit of research can save you a lot of money. Further, once you have your new car at home in the garage, try to avoid any account keeping fees, which on average will set you back $7 a month.

Average car loan application fee: $197

Highest car loan application fee: $410

Car loans without application fees:

 

 

  1. Overdrawn fees

This type of fee occurs when you accidentally withdraw more money than you have in your account. This is often caused by scheduled direct debits so set a reminder at least two days beforehand to ensure you have enough money in your account.

Average fee: $11

Highest fee: $40 (every time you go over)

  1. Balance transfer handling fees 

If you have outstanding debt on your credit card a 0 per cent interest rate balance transfer credit card is an enticing way to buy yourself some time. However, it’s important to remember that one way lenders make money through these cards is with a handling fee that will be a percentage of the amount transferred. There are 148 cards on the market that don’t sting you with this additional fee.

Average cost (on a $10K balance transfer): $165

Highest cost (on a $10K balance transfer): $300

  1. Overseas card fees

It’s easy to get swept up in the fun of a holiday and forget that your credit card is racking up currency conversion fees. There are currently eight cards on the market that don’t charge this, so do your research before you leave and you’ll have spare cash to splash.

Average: $29

Highest $36 (per trip, based on a $1,000 spend on your credit card and use of the ATM four times).

Small changes add up to a world of difference for your savings

We asked Natalie what she thought now knowing about these hidden fees.

“I’m definitely looking at my home loan and credit card differently,” said Natalie.

“My family moves around a lot and we’re not a loyal type of banker. We normally just look for recommendations from friends or news stories around interest rates.

“We always picked our credit card based on the best interest rates – same with mortgages.

“This has made me want to shop around and look at other lenders with less fees, instead of looking at who has the best interest rate,” said Natalie.

Hidden Fee Traps

 

ITEM Average Fees Highest Fees
Credit card annual fee $130.53 $1,200
Ongoing home loan fee $339.33 $849
Home loan discharge fee $295 $1,400
Home loan application fee $518 $995
Transaction account admin fee $55 $40
Transaction overdrawn fee (assuming 1x per year) $11.17 $40
Superannuation fees (on $50K) $631 $1,100
ATM fees (based on one withdrawal a week from an alternative ATM) $104 $104
Balance transfer credit card fee ($10K transfer) $165 $300
Overseas ATM fees (based on 4 ATM withdrawals per trip and one trip per year) $13 $10
Overseas currency conversion fees (based on a credit card spend on $1K, and one trip per year) $29.60 $36.50
Car loan application fee $197.89 $410
Car loan monthly fees $84 $600
     
TOTAL ANNUAL FEES (excluding one off application fees) $1,563 $4670

(The above table was calculated using the average and maximum savings possible. This will vary from person to person based on their individual circumstances.)

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Learn more about home loans

What is an ongoing fee?

Ongoing fees are any regular payments charged by your lender in addition to the interest they apply including annual fees, monthly account keeping fees and offset fees. The average annual fee is close to $200 however there are almost 2,000 home loan products that don’t charge an annual fee at all. There’s plenty of extra costs when you’re buying a home, such as conveyancing, stamp duty, moving costs, so the more fees you can avoid on your home loan, the better. While $200 might not seem like much in the grand scheme of things, it adds up to $6,000 over the life of a 30 year loan – money which would be much better off either reinvested into your home loan or in your back pocket for the next rainy day.

Example: Anna is tossing up between two different mortgage products. Both have the same variable interest rate, but one has a monthly account keeping fee of $20. By picking the loan with no fees, and investing an extra $20 a month into her loan, Josie will end up shaving 6 months off her 30 year loan and saving over $9,000* in interest repayments.

What fees are there when buying a house?

Buying a home comes with ‘hidden fees’ that should be factored in when considering how much the total cost of your new home will be. These can include stamp duty, title registration costs, building inspection fees, loan establishment fee, lenders mortgage insurance (LMI), legal fees and bank valuation costs.

Tip: you can calculate your stamp duty costs as well as LMI in Rate City mortgage repayments calculator

Some of these fees can be taken out of the mix, such as LMI, if you have a big enough deposit or by asking your lender to waive establishment fees for your loan. Even so, fees can run into the thousands of dollars on top of the purchase price.

Keep this in mind when deciding if you are ready to make the move in to the property market.

When do mortgage payments start after settlement?

Generally speaking, your first mortgage payment falls due one month after the settlement date. However, this may vary based on your mortgage terms. You can check the exact date by contacting your lender.

Usually your settlement agent will meet the seller’s representatives to exchange documents at an agreed place and time. The balance purchase price is paid to the seller. The lender will register a mortgage against your title and give you the funds to purchase the new home.

Once the settlement process is complete, the lender allows you to draw down the loan. The loan amount is debited from your loan account. As soon as the settlement paperwork is sorted, you can collect the keys to your new home and work your way through the moving-in checklist.

What are the features of home loans for expats from Westpac?

If you’re an Australian citizen living and working abroad, you can borrow to buy a property in Australia. With a Westpac non-resident home loan, you can borrow up to 80 per cent of the property value to purchase a property whilst living overseas. The minimum loan amount for these loans is $25,000, with a maximum loan term of 30 years.

The interest rates and other fees for Westpac non-resident home loans are the same as regular home loans offered to borrowers living in Australia. You’ll have to submit proof of income, six-month bank statements, an employment letter, and your last two payslips. You may also be required to submit a copy of your passport and visa that shows you’re allowed to live and work abroad.

When does Commonwealth Bank charge an early exit fee?

When you take out a fixed interest home loan with the Commonwealth Bank, you’re able to lock the interest for a particular period. If the rates change during this period, your repayments remain unchanged. If you break the loan during the fixed interest period, you’ll have to pay the Commonwealth Bank home loan early exit fee and an administrative fee.

The Early Repayment Adjustment (ERA) and Administrative fees are applicable in the following instances:

  • If you switch your loan from fixed interest to variable rate
  • When you apply for a top-up home loan
  • If you repay over and above the annual threshold limit, which is $10,000 per year during the fixed interest period
  • When you prepay the entire outstanding loan balance before the end of the fixed interest duration.

The fee calculation depends on the interest rates, the amount you’ve repaid and the loan size. You can contact the lender to understand more about what you may have to pay. 

Why does Westpac charge an early termination fee for home loans?

The Westpac home loan early termination fee or break cost is applicable if you have a fixed rate home loan and repay part of or the whole outstanding amount before the fixed period ends. If you’re switching between products before the fixed period ends, you’ll pay a switching break cost and an administrative fee. 

The Westpac home loan early termination fee may not apply if you repay an amount below the prepayment threshold. The prepayment threshold is the amount Westpac allows you to repay during the fixed period outside your regular repayments.

Westpac charges this fee because when you take out a home loan, the bank borrows the funds with wholesale rates available to banks and lenders. Westpac will then work out your interest rate based on you making regular repayments for a fixed period. If you repay before this period ends, the lender may incur a loss if there is any change in the wholesale rate of interest.

What are exit and discharge fees?

The Federal Government banned exit fees in 2011, removing one of the biggest barriers to taking switching home loan providers. Lenders can still legally charge a discharge fee, which is payable when you come to the end of your home loan, however these fees are relatively small at an average of $304 while 134 products don’t have them at all.

What is upfront fee?

An ‘upfront’ or ‘application’ fee is a one-off expense you are charged by your bank when you take out a loan. The average start-up fee is around $600 however there are over 1,000 loans on the market with none at all. If the loan you want does include an application fee, try and negotiate to have it waived. You’ll be surprised what your bank agrees to when they want your business.

How does ANZ calculate early repayment costs?

If you have a fixed interest home loan, you’ll pay ANZ home loan early exit fees for partial or full repayment of the loan amount before the end of the fixed interest rate duration. These fees are also payable if you switch to another variable or fixed-rate loan.

The ANZ mortgage early exit fees can vary and you can get an estimate from the lender before you decide to prepay the loan. However, the exact early repayment cost can be determined when you prepay the loan.

The early exit fees are calculated after considering factors like the prepayment amount, the period left before the fixed-rate duration ends, and the change in the market rates since the beginning of the fixed-rate period. The early exit fees may not be charged if you’re paying off a smaller amount. You can check with ANZ to see how much you’ll have to pay.

What is a redraw fee?

Redraw fees are charged by your lender when you want to take money you have already paid into your mortgage back out. Typically, banks will only allow you to take money out of your loan if you have a redraw facility attached to your loan, and the money you are taking out is part of any additional repayments you’ve made. The average redraw fee is around $19 however there are plenty of lenders who include a number of fee-free redraws a year. Tip: Negative-gearers beware – any money redrawn is often treated as new borrowing for tax purposes, so there may be limits on how you can use it if you want to maximise your tax deduction.

Cash or mortgage – which is more suitable to buy an investment property?

Deciding whether to buy an investment property with cash or a mortgage is a matter or personal choice and will often depend on your financial situation. Using cash may seem logical if you have the money in reserve and it can allow you to later use the equity in your home. However, there may be other factors to think about, such as whether there are other debts to pay down and whether it will tie up all of your spare cash. Again, it’s a personal choice and may be worth seeking personal advice.

A mortgage is a popular option for people who don’t have enough cash in the bank to pay for an investment property. Sometimes when you take out a mortgage you can offset your loan interest against the rental income you may earn. The rental income can also help to pay down the loan.

Should I apply for a NAB home loan pre-approval?

Buying a new home is an exciting event in anybody’s life. Getting pre-approval means you know what you can afford so you don’t waste time looking at properties outside your budget. With a NAB Bank home loan pre-approval, you can look for your new home with confidence. The lender knows you’re serious about the purchase and also exhibits a willingness to lend you money.

Applying for a NAB home loan pre-approval is relatively straightforward. You might be asked to provide proof of employment and income, details of any savings as well as any on-going debts. NAB may also conduct a credit check on you to see if you’d be a risky borrower. If NAB offers you pre-approval after these checks, you’ll know how much money they’re willing to lend you. The NAB Bank home loan pre-approval is valid for 90 days from application, so don’t apply too early and be aware of this when looking for a property. If your pre-approval expires before you find a property you’ll need to reapply.

You can apply online for NAB home loan pre-approval, visit your nearest NAB branch, call on 13 79 79, or set up an appointment. If you choose to book an appointment, it can be done in person, via video, over a call or you can have a NAB Bank representative visit you.

 

 

 

Can I apply for an NAB home loan during maternity leave?

After you apply for a home loan during maternity leave, an NAB representative will first assess your income, assets, and liabilities to determine if you're able to meet the monthly repayments. Like all home loan applications, you will need to provide specific documentation to NAB while applying for the loan, including recent payslips from three months before your maternity leave, and a letter from your employer stating the details of your absence with the date of your anticipated return, tenure, and income. NAB will also analyse the expenses you need to bear while on leave, for example, utilities, childcare, healthcare services, etc. 

It’s crucial to let the NAB representative know that you’re pregnant and will be going into a paid or unpaid maternity leave, as it can mean a faster chance of approval. 

Similar to a regular mortgage application, you can borrow 80 to 90 per cent of the total property value if you meet the eligibility criteria. If you’re applying for a loan while pregnant, you may want to  consider borrowing 80 per cent or below of the total property value, as this may help  lower the monthly repayment amount. 

How to apply for a pre-approval home loan from HSBC Bank?

If you’re planning on applying for a home loan, the best way to start is by having a clear picture of your requirements. By getting a pre-approval on your home loan, you can go house shopping with a definite budget, which can help you narrow down your search considerably. So, once you have identified the type of property you would like to purchase, you can seek pre-approval on a home loan from HSBC Bank. 

You can apply for this form of conditional approval by contacting HSBC’s loan experts on 1300 694 722 or visiting the HSBC branch nearest to you. The process is fairly simple and fast: the representative will verify some key facts like your income and property valuation. You’ll usually be told within a couple of weeks whether you’ve been successful.