The real costs of a home loan



Jun 15, 2011( 3 min read )

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Disguised by a league of various names including application, start-up, set-up or up-front fees, whatever you call it, an application fee will always be applied when signing up for a new home. But along with this, what are the other costs, the real costs, of a home loan?

What is an establishment fee? 

An establishment fee is meant to cover the costs of creating your file and producing the necessary documents to set up your home loan.

The amount you pay to establish a mortgage differs between institutions. Some may charge hundreds of dollars or more, others will shoulder the fee on your behalf and not charge you an establishment fees at all. So it’s worth taking this into consideration when calculating the costs of setting up a home loan or switching to another lender.

What other costs will I incur from my home loan?

Unfortunately, lenders charge borrowers with more than just establishment fees over the life of the mortgage.

Some of these extra fees can include:

  • Monthly ongoing fees
  • Early exit fees
  • Break fees
  • Deferred establishment fees
  • Default fees if you fail to meet repayments

If you borrow through a broker you may be hit with a brokerage fee, valuation fee, legal fees and settlement fees on top of this, which can easily run into the thousands of dollars, so it’s likely to be cheaper if you compare home loans, and then apply online.

To get a better idea of the real cost of your mortgage including fees and charges it’s best to look at the comparison rate, as opposed to the advertised rate. A comparison rate helps you identify the actual cost of a loan and it takes into account set-up costs, as well as any other up-front or ongoing costs of holding a loan. These fees can really add up over time and should be a deciding factor when comparing all financial products.

For instance, take two home loans with the same advertised rate of 6.82 percent. Both have an ongoing monthly fee of $10, but one has a $445 establishment fee, while the other has none. As a result, the comparison rates differ by 0.02 percent.

So before you sign up for a home loan or refinance with a new lender, it’s important to consider establishment fees as well as a number of other costs associated with applying for finance. Also read the product disclosure statement and understand all conditions before signing up, so you know exactly what to expect financially and legally from your mortgage.

Conduct your own fees and charges research with the RateCity home loan comparison chart and home loan repayment calculator.


^Words such as "top", "best", "cheapest" or "lowest" are not a recommendation or rating of products. This page compares a range of products from selected providers and not all products or providers are included in the comparison. There is no such thing as a 'one- size-fits-all' financial product. The best loan, credit card, superannuation account or bank account for you might not be the best choice for someone else. Before selecting any financial product you should read the fine print carefully, including the product disclosure statement, fact sheet or terms and conditions document and obtain professional financial advice on whether a product is right for you and your finances.

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