Most borrowers focus on the interest rate when comparing home loan options, but the fees attached to a loan can add thousands to the total cost of borrowing.
Understanding what you will pay upfront, what you will pay each year, and what you might pay if you exit early gives you a complete picture of what a home loan actually costs. Some lenders advertise low rates but recover the margin through higher fees. Others waive most charges but price them into a slightly higher interest rate. Neither approach is inherently worse, but you need to know which model you are dealing with to make an informed comparison.
Application and Establishment Fees
An application fee covers the lender's cost of processing your home loan application, while an establishment fee covers the administrative work involved in setting up the loan once approved. These fees typically range from zero to around $600 per fee, depending on the lender and the home loan product. Some lenders charge both, some charge one or the other, and some charge neither.
In our experience, many borrowers assume a loan with no application fee is automatically cheaper, but that is not always the case. A lender offering a fee waiver might price the cost into the interest rate instead, which means you pay more over time rather than upfront. When comparing home loan rates, calculate the total cost over the period you expect to hold the loan, including both the interest rate and any fees charged at settlement.
Valuation and Settlement Charges
Before approving your loan, the lender will arrange a valuation to confirm the property's market value and ensure it provides adequate security for the loan amount. Valuation fees typically range from $200 to $600 depending on the property type and location. Most lenders pass this cost directly to the borrower, though some cover it as part of their home loan packages.
You will also pay settlement fees, which cover the lender's legal and administrative costs when the loan is drawn down. These generally sit between $150 and $300. If you are using a solicitor or conveyancer, they will coordinate settlement on your behalf and include these costs in their final invoice. Some lenders bundle valuation and settlement charges into a single cost, while others itemise them separately on your loan disclosure documents.
Lenders Mortgage Insurance When Your Deposit Is Below 20%
Lenders Mortgage Insurance is charged when your deposit is less than 20% of the property's value, meaning your loan to value ratio exceeds 80%. LMI protects the lender if you default on the loan and the property sells for less than the outstanding debt. The premium is typically added to your loan amount rather than paid upfront, though you can choose to pay it in cash at settlement if you prefer.
Consider a buyer purchasing an owner occupied home with a 10% deposit. The LMI premium might be $10,000 or more depending on the loan amount and the lender's pricing. That cost is capitalised into the loan, which means you pay interest on it for the life of the loan unless you make additional repayments to reduce the balance. LMI is a one-off charge, not an ongoing fee, and it does not need to be paid again if you refinance with the same lender or if some lenders offer an LMI transfer when switching.
If you are a first home buyer, some lenders offer reduced LMI or government schemes that allow you to borrow with a smaller deposit without paying the insurance. Comparing home loan options with different LMI pricing can reveal significant differences in total upfront costs, even when the interest rate is similar.
Ongoing Monthly and Annual Account Fees
Some home loan products charge an ongoing monthly or annual account fee, typically between $10 and $30 per month. This fee covers the cost of maintaining your loan account, providing statements, and offering access to features such as an offset account or redraw facility. Other lenders structure their home loan packages without ongoing fees, particularly if the loan is a basic variable rate product without additional features.
A $15 monthly fee adds $180 per year to your borrowing cost. Over a 30-year loan term, that totals $5,400 in fees alone. When comparing rates, factor in the ongoing account fee and assess whether the features included justify the cost. A loan with a slightly higher interest rate but no monthly fee might cost less overall than a loan with a lower rate and a $20 monthly charge, depending on your loan amount and how long you hold the loan.
Offset Account and Package Fees
An offset account is a transaction account linked to your home loan, where the balance reduces the interest charged on your loan without affecting your access to those funds. Many lenders include an offset account as a standard feature on variable rate loans, while others charge a fee for access or require you to take out a home loan package that bundles the offset with other features such as a credit card or discounted insurance.
Package fees typically range from $300 to $400 per year. If you maintain a significant balance in your offset account, the interest saved will usually exceed the package fee. If your offset balance is low or inconsistent, you might pay more in fees than you save in interest. Calculate your expected offset balance and compare the interest saved against the annual package fee to determine whether the feature delivers value in your situation.
Discharge and Exit Fees
A discharge fee is charged when you pay out your home loan in full, either because you have sold the property or because you are refinancing to another lender. This fee covers the lender's administrative and legal costs in removing the mortgage from the property title. Discharge fees typically range from $150 to $400 depending on the lender.
Some lenders also charge an exit fee if you close the loan within a certain period, usually the first few years. Exit fees are less common now than they were a decade ago, but they still appear in some home loan products. If you expect to refinance or sell within the first few years, confirm whether an exit fee applies and factor it into your comparison.
Fixed rate home loans often include break costs if you exit the loan early, refinance, or make repayments above the allowed threshold before the fixed period ends. Break costs are calculated based on the difference between your fixed interest rate and the lender's current wholesale funding cost for the remaining fixed term. If rates have fallen since you fixed, the break cost can be substantial. If rates have risen, the break cost might be zero or minimal. Break costs are separate from discharge fees and can run into thousands of dollars depending on your loan amount and how much time remains on the fixed term.
Comparing Total Loan Costs Across Lenders
When you apply for a home loan, the lender is required to provide a comparison rate, which includes the interest rate and most standard fees expressed as a single annual percentage rate. The comparison rate is calculated on a $150,000 loan over 25 years, which makes it a useful starting point for comparing home loan products but not a precise reflection of your actual borrowing cost if your loan amount or term differs significantly from that benchmark.
Comparison rates do not include LMI, offset account fees, or break costs on a fixed interest rate home loan. They also exclude non-monetary features such as portability, the ability to split your loan between fixed and variable, or access to additional repayments and redraw. Use the comparison rate as one input in your decision, but calculate the total cost based on your specific loan amount, deposit, and intended loan term to get an accurate picture.
In a scenario where one lender offers a variable interest rate of 6.20% with no ongoing fees and another offers 6.10% with a $20 monthly account fee, the second loan costs more if your loan amount is below $240,000 and you hold the loan for more than a few years. Above that amount, the lower rate might deliver savings that exceed the fee. The difference depends on your circumstances, which is why a direct comparison based on your own numbers is more reliable than relying on advertised rates alone.
Rate Discounts and Conditional Fee Waivers
Some lenders offer interest rate discounts or fee waivers if you meet certain conditions, such as depositing your salary into a linked transaction account, maintaining a minimum offset balance, or holding other products with the same lender. These discounts can reduce your interest rate by 0.10% to 0.30%, which translates to genuine savings over the life of the loan.
The conditions attached to these discounts vary. Some lenders require you to deposit a minimum amount each month, while others simply require the account to remain open. If you lose the discount because you no longer meet the criteria, your interest rate reverts to a higher base rate, which can increase your repayments significantly. Before relying on a conditional discount, confirm what is required to maintain it and assess whether those conditions fit your banking habits.
Call one of our team or book an appointment at a time that works for you to discuss your loan options and receive a breakdown of the fees and costs attached to each home loan product suited to your situation.
Frequently Asked Questions
What is the difference between an application fee and an establishment fee?
An application fee covers the cost of processing your home loan application, while an establishment fee covers the administrative work involved in setting up the loan once it is approved. Some lenders charge both, some charge one, and some charge neither.
Do I have to pay Lenders Mortgage Insurance if my deposit is less than 20%?
Yes, most lenders require LMI when your deposit is below 20% of the property value, meaning your loan to value ratio exceeds 80%. The premium can usually be added to your loan amount rather than paid upfront.
What is a discharge fee and when do I pay it?
A discharge fee is charged when you pay out your home loan in full, either because you are selling the property or refinancing to another lender. The fee typically ranges from $150 to $400 and covers the lender's costs in removing the mortgage from the property title.
How do I know if an offset account fee is worth paying?
Calculate your expected offset account balance and compare the interest you will save against the annual package fee. If you maintain a significant balance, the interest saved usually exceeds the fee. If your balance is low or inconsistent, the fee might cost more than you save.
What is a comparison rate and does it include all loan costs?
A comparison rate combines the interest rate and most standard fees into a single annual percentage rate, calculated on a $150,000 loan over 25 years. It does not include LMI, offset fees, break costs, or non-monetary features, so it is a useful starting point but not a complete picture of your total borrowing cost.
