The rate is only one part of what a home loan costs you. Upfront charges, annual fees, break costs and insurance can change the real price of a loan by thousands of dollars. Looking at all of them together is the most useful step before you apply.
For buyers in Mandurah and across Australia, this matters most when you compare lenders. A loan with a low advertised rate can still cost more than a loan with a slightly higher rate and fewer fees.
What Fees Come With a Home Loan?
Most home loans carry some combination of upfront fees, ongoing fees and exit fees. Which ones apply depends on the lender and the loan product you choose.
Upfront costs can include an application or settlement fee and a valuation fee. Ongoing costs often include a monthly or annual service fee, and some home loan packages bundle these into one yearly charge. Exit costs can include a discharge fee when you close the loan. If you have a fixed rate, there may also be break costs for leaving early.
Many lenders publish a comparison rate that folds some fees into a single figure. It is a helpful starting point, but it does not capture every cost, so ask for a full fee schedule for each loan you are considering.
Package Fees and Offset Accounts: Weighing the Numbers
A package with an annual fee can cost less than it seems if you use the features it includes. It can also cost more if you pay for features you never use.
Consider a borrower with a $500,000 loan over 30 years at 6.75% p.a. This rate is illustrative only and is not a current offer. Repayments on a principal and interest basis would be about $3,243 per month.
The borrower compares two loans at that same illustrative rate. Loan A has no annual fee and no offset account. Loan B has a hypothetical $395 annual package fee and a linked offset account. The borrower keeps an average of $20,000 in the offset account.
That $20,000 is treated as if it reduces the loan balance when interest is calculated. At 6.75% p.a., this is worth about $1,350 per year in interest not charged. After the $395 fee, Loan B is ahead by about $955 per year. If the borrower's savings fell to around $5,000, the interest reduction would be about $338. That is less than the fee, and Loan A would be the lower cost option.
The trade-off is that the offset only helps while you keep money in it. Some lenders also price offset loans differently, so check the rate and fees together. A mortgage broker can run this comparison across lenders using your actual savings habits.
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Fixed Rate Break Costs: Check Before You Commit
Break costs are a charge from your lender if you repay a fixed rate loan or switch lenders before the fixed term ends. The amount depends on your lender's calculation, the remaining term and how rates have moved, so it can be large or close to nothing.
This matters if you might sell, refinance or make large extra repayments during the fixed period. A split loan, with part fixed and part variable, can limit how much is exposed to break costs. The trade-off is that the variable portion moves with rate changes, and extra repayment limits often apply to the fixed portion.
If your fixed term is close to ending, the fixed rate expiry page explains your choices. Ask your lender for a written break cost estimate before you make any decision.
Lenders Mortgage Insurance: Why Deposit Size Changes Your Costs
Lenders Mortgage Insurance (LMI) is an insurance cost that lenders commonly charge when your loan to value ratio (LVR) is high, meaning your deposit is small. It protects the lender, not you, and the amount depends on your LVR, loan amount and lender.
It can often be added to the loan, but then you pay interest on it for as long as you hold the loan. A larger deposit can reduce or remove the cost. If you are buying your first home, the first home buyers page outlines options worth discussing, and any government scheme should be checked against the official source for your state before you rely on it.
Your borrowing capacity also affects how much deposit you need for a given purchase, so it helps to know both numbers before you make an offer.
Refinancing Costs: When Switching Lenders Adds Up
Switching lenders can lower your costs only if the savings are larger than the discharge, application and any break costs. Compare these against the likely reduction in interest over the time you plan to keep the loan.
An existing loan that has drifted away from a competitive rate may be worth reviewing. A loan health check looks at your rate, fees and features together. If a switch makes sense, our refinancing service can compare lenders for you. Some lenders offer cash incentives to new customers, but these often come with conditions, so read the terms carefully.
For tax questions, such as whether interest on an investment loan is deductible, speak with your accountant. Deductibility depends on your circumstances and does not apply to a full owner occupied home loan repayment.
To understand the full cost of your next loan or your current one, call one of our team or book an appointment at a time that works for you. We will compare fees, features and rates across lenders and show you the numbers before you decide.
Frequently Asked Questions
What fees can come with a home loan?
Common costs include application or settlement fees, valuation fees, annual or monthly service fees and discharge fees. Fixed rate loans may also have break costs if you exit early. Ask each lender for a full fee schedule.
Is an offset account worth an annual package fee?
It depends on the balance you keep in the offset. In an illustrative example at 6.75% p.a., a $20,000 average balance reduces interest by about $1,350 per year. A much smaller balance may not cover the fee.
What are fixed rate break costs?
They are charges from your lender if you repay or refinance a fixed rate loan before the term ends. The amount depends on your lender's calculation and the remaining term. Ask for a written estimate before acting.
Why might I pay Lenders Mortgage Insurance?
Lenders commonly charge LMI when your deposit is small and your LVR is high. The cost varies by lender, LVR and loan amount. A larger deposit can reduce or remove it.
