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Mortgage exit fees

Mortgage exit fees

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

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.

Exit Fees

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.

In the market for a new home or want to shop around and compare current home loans? Jump onto the RateCity home loan comparison page or use the mortgage repayment calculator.

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Learn more about home loans

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.

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.