Home loans
What Fees Come With a Home Loan? Home Loan Fees Explained
Home loan fees explained: application, ongoing, LMI, stamp duty and exit costs in Australia, plus how the comparison rate helps you compare loans fairly.
Home loan fees are the one-off and ongoing charges that sit on top of the interest you pay, and they can add up over the life of a loan. The short answer is that most home loans carry an upfront application fee, ongoing account fees, and a set of property and government costs at purchase, with extra exit costs if you leave the loan early. This guide walks through the home loan fees you are most likely to meet, what each one is for, and how to compare loans on a fair basis, so you can read any loan offer with clear eyes.
This is general information only. What applies to you will depend on your circumstances and each lender’s criteria, and the exact dollar amounts are set by your lender.
The guidance below draws on the Australian Securities and Investments Commission, known as ASIC, and its MoneySmart service, the government’s independent money guidance. MoneySmart does not publish a single dollar figure for every fee, so we name each fee and explain what it covers, and point you to your lender’s credit guide for the actual amounts.
If you would rather have the lending side mapped out with you from the start, the options come together on our home loans hub.
Upfront fees when you start a home loan
The first fee most borrowers meet is the application fee. MoneySmart describes this as a one-off payment when starting a loan, also called an establishment, up-front or set-up fee. It covers the lender setting up your loan, and the amount varies by lender and by loan, so check the loan’s credit guide for the figure.
Alongside the application fee, a lender will usually need to value the property and arrange settlement, and some loans bundle these into a package fee while others list them separately. The point to hold onto is that these are once-off costs at the start of the loan, not amounts you pay every month.
Ongoing fees while you hold the loan
Once the loan is running, you may pay ongoing fees. MoneySmart describes these as fees charged every month or year for administering a loan, also called service or administration fees. Some loans replace a monthly fee with an annual package fee that bundles features such as an offset account or a fee-free credit card.
A small monthly or annual fee can look minor, but it runs for the full term of the loan, so it belongs in any honest comparison of two offers.
| Fee | When it applies | What it covers |
|---|---|---|
| Application fee | Once, when you start the loan | Setting up the loan, also called an establishment or set-up fee |
| Ongoing fee | Every month or year | Administering the loan, also called a service or administration fee |
| Discharge fee | When you close the loan | Ending and releasing your current loan |
| Break fee | If you exit a fixed rate early | Cost of ending a fixed term before it finishes |
| Lenders Mortgage Insurance | When you borrow more than 80% of the property value | Insurance that protects the lender, not you |
Property and government costs at purchase
Some of the largest costs at purchase are not lender fees at all. They are property and government costs, and they sit alongside your home loan fees in the total you need at settlement.
Stamp duty is the big one. MoneySmart describes stamp duty as a one-off state government property-transfer tax that you typically need to pay within 30 days of settlement. The amount depends on the state or territory and the price of the property, and some first home buyers qualify for a concession or exemption.
Two other costs are worth budgeting for. MoneySmart suggests getting a building and pest report done by a professional during the cooling off period, which could save money down the track, and recommends getting a solicitor or conveyancer to review the contract of sale. Neither is a home loan fee, but both are part of the real cost of buying.
Lenders Mortgage Insurance and your deposit
Lenders Mortgage Insurance, usually shortened to LMI, is a cost that depends entirely on the size of your deposit. MoneySmart defines LMI as insurance that protects a credit provider if borrowers are unable to repay their loan, and it is clear that LMI does not benefit the borrower, it only protects the lender.
LMI is usually a one-off cost to a home loan borrower, payable when the amount borrowed exceeds 80% of the value of the property. In other words, a smaller deposit can trigger it. MoneySmart puts it simply: a 20% deposit will avoid you needing to pay Lenders Mortgage Insurance.
Whether LMI applies, and how much it costs, comes down to your deposit, the property value and your lender’s criteria. The first home buyer guides on what Lenders Mortgage Insurance is and on how to avoid LMI go into the detail.
Exit and refinance fees
The fees do not stop once the loan is running. If you leave a loan or refinance, MoneySmart lists a set of switching costs to weigh up.
A discharge or termination fee is charged when you close your current loan. If you are on a fixed rate loan, you may also need to pay a break fee for ending the fixed term early. Refinancing internally, where you stay with your current lender but switch to a different loan, can attract a switching fee. MoneySmart also notes you may be liable for stamp duty when you refinance, so check with your lender.
Lenders Mortgage Insurance can bite a second time when you refinance. MoneySmart warns that if you have less than 20% equity in your home, you might have to pay it again, which can increase the cost of switching and outweigh the savings from a lower interest rate. The good news: MoneySmart says that if you decide to switch, you can ask for a refund of some of the Lenders Mortgage Insurance from your current loan.
What mortgage broker fees look like
Mortgage broker fees often surprise people, because in most cases the borrower pays nothing directly. MoneySmart explains that lenders generally pay mortgage brokers a commission for distributing their products, so you do not pay them directly.
Where a broker does charge you a fee directly, MoneySmart is clear on the protections. The broker should clearly communicate this and set out the proposed fee in a written quote, and you must sign a quote before the broker provides services and requests payment. On top of that, mortgage brokers must act in your best interests when suggesting a loan for you.
How to compare home loan fees fairly
With so many fees in play, comparing two loans on interest rate alone can mislead you. This is where the comparison rate earns its place.
MoneySmart describes a comparison rate as a single figure of the cost of the loan that includes the interest rate and most fees. It is a fairer way to line up offers than the headline rate, because it folds the upfront and ongoing fees into one number. It does not capture everything, so still read the fee list, but it is the right starting point. Our guide on the comparison rate explained goes deeper on what that figure does and does not capture.
As MoneySmart puts it, small differences in interest rates, costs, and repayments can make a difference over the life of your home loan. A loan with a slightly higher rate but no ongoing fees may work out cheaper than a lower rate loaded with charges, and the comparison rate is what surfaces that.
A borrowing power estimate is a sensible companion check. It shows the ballpark you are working within before you weigh up the fees on any one loan.
Try the borrowing power calculator
Open the calculator to run your own numbers.
You can use the borrowing power calculator to get an estimate, then read it alongside the fees on any loan to see how the offer stacks up. If you would rather have a broker line the offers up for you, our guide on working with a first home buyer mortgage broker explains how that works.
Where Finance Lab fits in
Knowing the fees is the easy part. Reading them against your deposit, your property, your timing and a panel of lenders is where it gets personal, and that is where guidance helps. The team at Finance Lab can walk you through which fees apply to your situation, how they compare across lenders, and what the all-in cost of a loan really looks like.
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