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Home Loans Guide, Step 7 of 7, Fees & Charges

Home Loans Guide - Step 7 of 7 - Fees & Charges

Hidden fees and charges are no one’s friend. It can be incredibly disheartening planning to buy a home and discovering, once you are neck deep in home loan applications, that you haven’t accounted for half of the fees and charges you need to cover.

To avoid any costly surprises, we have prepared a list for you that details some of the fees and charges associated with home loans:

Application fee/up-front cost

Application fees can be dressed up with many different names, such as establishment, start-up and set-up fees, but the meaning is still the same; a one-off fee that is charged at the start of your home loan. If you are lucky, some lenders will waive this fee for you.

Loans with no up-front costs:

Ongoing fee

Ongoing fees are a type of administration fee which are usually charged monthly or annually.

Loans with no ongoing fee:

Additional repayment fee

Some lenders will allow you to make extra repayments towards your loan so you can pay it off earlier, but may charge a fee for the privilege. Always check for additional repayments fees if you are interested in paying off your loan ahead of schedule.

Loans with no extra repayment fee:

Late payment fee

When you sign up for a home loan, you will agree to a regular repayment date – if you do not make the payments on time, you could incur high late fees.

Break costs and exit fees

In July 2011, exit fees were abolished by the Australian government. However, if you signed a mortgage before this date, you could still incur exit fees.

Break fees apply if you have a fixed interest rate loan, but wish to break out of the loan before the agreed fixed rate period has expired.

Mortgage discharge fee

Mortgage discharge fees, also known as termination and settlement fees, are charged when you have paid off your home loan in full.

Redraw fee

Some lenders will allow you to redraw extra money you have paid towards you home loan, but some charge a fee for doing so. If your home loan offers redraw facilities, make sure you enquire about any fees or redraw limitations that may apply.

Loans with no redraw fee:

Re-fix fee

At the end of your agreed fixed rate loan period, you may wish to re-fix your loan rate once again. Some lenders will charge a re-fix fee to do so.

Switching fee

At the beginning of your home loan term, you will agree on a variable or fixed interest rate. If you decide to switch from one rate type to another, you may be charged a switching fee.   

Portability fee

Portability fees are incurred when you move your home loan over from one property to another.

Lender’s mortgage insurance

If you have less than a 20 percent deposit, you may be required to pay lender’s mortgage insurance – which can total into the thousands.

Further home loan costs

As well as the listed fees and charges, there are also government taxes and other expenses associated with home ownership, including stamp duty, mortgage and transfer registration, and land tax. To estimate your stamp duty charges and government fees, visit our stamp duty calculator.

For more information on the process of taking out a home loan, from beginning to end, walk through RateCity’s complete series of Home Loans Step by Step guides:

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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.

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.

How do I apply for a home improvement loan?

When you want to renovate your home, you may need to take out a loan to cover the costs. You could apply for a home improvement loan, which is a personal loan that you use to cover the costs of your home renovations. There is no difference between applying for this type of home improvement loan and applying for a standard personal loan. It would be best to check and compare the features, fees and details of the loan before applying. 

Besides taking out a home improvement loan, you could also:

  1. Use the equity in your house: Equity is the difference between your property’s value and the amount you still owe on your home loan. You may be able to access this equity by refinancing your home loan and then using it to finance your home improvement.  Speak with your lender or a mortgage broker about accessing your equity.
  2. Utilise the redraw facility of your home loan: Check whether the existing home loan has a redraw facility. A redraw facility allows you to access additional funds you’ve repaid into your home loan. Some lenders offer this on variable rate home loans but not on fixed. If this option is available to you, contact your lender to discuss how to access it.
  3. Apply for a construction loan: A construction loan is typically used when constructing a new property but can also be used as a home renovation loan. You may find that a construction loan is a suitable option as it enables you to draw funds as your renovation project progresses. You can compare construction home loans online or speak to a mortgage broker about taking out such a loan.
  4. Look into government grants: Check whether there are any government grants offered when you need the funds and whether you qualify. Initiatives like the HomeBuilder Grant were offered by the Federal Government for a limited period until April 2021. They could help fund your renovations either in full or just partially.  

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.