In July 2011 the government abolished home loan exit fees so that borrowers would no longer be discouraged from switching home loans to a more competitive lender. This has created a healthier and more competitive home loan market with Australians constantly on the lookout for the best home loans. But, it is still important to take note of the other fees and charges associated with home loans.
When you sit down with your mortgage lender make sure you go through all the fees and charges so you know upfront what you’re paying for and what your options are.
Establishment fees, also known as application, start-up, up-front or set-up fees, is a one-off payment that you pay to start your loan. Some lenders will waive their establishment fees but be careful they don’t charge you higher ongoing fees instead.
Ongoing Administration Fees
Ongoing administration fees are usually charged monthly or at the end of the year. Check what your lenders ongoing fees are before signing on the dotted line.
Lenders Mortgage insurance
If you don’t have a deposit of over 20% at the time you are taking out your home loan, you may be considered a high risk borrower and will have to take out lenders mortgage insurance (LMI).
LMI is an assurance for lenders who have high risk borrowers who may not be able to make their loan repayments. Your risk assessment is worked out by your loan to value ratio (LVR), which calculates a percentage by dividing the amount of your home loan by the purchase price of the property you want to buy.
The price of LMI is on the high-end and can add thousands of dollars to your home loan so to avoid this additional cost get saving.
Breaking a fixed rate home loan
For locked-in fixed home loans you can still be charged a surmountable fee for breaking your home loan terms. The price you will be charged depends on the current interest rates. If the interest rates have come down substantially since you took out your loan you can expect a much higher break fee.
While exit fees were banned in 2011 they can still be charged on loans that were signed before this date. Check with your lender to find out what exit fees apply to you if you were to switch lenders or pay off your loan early. You could be in luck as some lenders have removed the exit fees on their pre-existing home loans.