Common Mistakes Around Home Loan Costs and Fees

Home loan costs extend well beyond the interest rate.

Application fees, valuation charges, settlement costs, and ongoing account-keeping fees can add thousands to your borrowing expenses. Knowing which fees are negotiable, which can be capitalised into your loan amount, and which appear only at specific stages gives you control over your budget and helps you compare loan products accurately.

Application Fees and Upfront Charges

Most lenders charge an application or establishment fee that covers the administrative cost of processing your loan, typically ranging from $0 to $600. Some lenders waive this fee entirely as part of promotional offers or when you use a mortgage broker, while others bundle it into a broader package that includes valuation and settlement services.

Valuation fees sit separately and cover the cost of a professional property assessment required by the lender. Depending on the property location and type, this can range from $200 to $600 or more. For properties in regional areas or those requiring specialised assessments, the cost may increase. Some lenders absorb this cost, particularly during refinancing campaigns, but it remains a standard upfront charge for most first home buyers and property investors.

Settlement fees, also called documentation or processing fees, cover the legal and administrative work required to finalise your loan. These typically range from $150 to $300 and are payable at settlement. Unlike application fees, settlement charges are rarely waived and should be factored into your upfront cost estimate.

Lenders Mortgage Insurance and How It Adds to Loan Costs

Lenders Mortgage Insurance (LMI) applies when your deposit is less than 20% of the property value, meaning your loan to value ratio exceeds 80%. LMI protects the lender if you default on the loan, but you pay the premium. The cost varies based on your deposit size and loan amount. A borrower purchasing at the Melbourne median with a 10% deposit might face an LMI premium between $10,000 and $20,000, depending on the lender's pricing structure.

You can usually add LMI to your loan amount rather than paying it upfront, but this increases the total you borrow and the interest you pay over time. Some lenders offer reduced LMI rates for specific professions or if you meet certain lending criteria, so it's worth exploring options before assuming the quoted premium is fixed.

LMI is a one-off cost. Once paid, it doesn't recur unless you refinance and increase your loan amount beyond 80% of the property value again.

Ongoing Account Fees and What They Cover

Many home loan products include monthly or annual account-keeping fees, typically between $10 and $15 per month or $120 to $180 per year. These fees cover the administrative cost of maintaining your loan account, processing repayments, and providing online account access.

Packaged loan products that include an offset account, redraw facility, or split loan structure may carry higher ongoing fees but often provide features that reduce the interest you pay. A loan with a $395 annual package fee but a fully linked offset account can save you more in interest than a no-fee loan without an offset, provided you maintain a balance in the offset account.

Some lenders charge separate fees for specific features. A redraw fee, for instance, might cost $10 to $50 each time you access extra repayments you've made. If you plan to make lump sum payments and need flexibility to access those funds later, confirm whether redraw is free or fee-based before committing to a product.

Discharge and Exit Costs When Refinancing or Selling

Discharge fees apply when you close your home loan, whether you're refinancing to a new lender or selling the property. These fees cover the administrative and legal work required to release the lender's interest in the property and typically range from $150 to $400.

If you have a fixed interest rate home loan and you exit before the fixed term ends, break costs may also apply. These costs compensate the lender for the difference between the rate you locked in and the current wholesale funding rate. The calculation can be complex, but in a scenario where you exit a fixed rate that's significantly higher than current rates, break costs may be minimal or zero. Conversely, exiting a low fixed rate in a rising rate environment can result in break costs of several thousand dollars.

Before refinancing, request a discharge estimate from your current lender and a break cost calculation if applicable. This allows you to assess whether the savings from a new loan justify the exit costs.

Fees You Can Negotiate or Waive

Application fees, valuation costs, and ongoing account fees are often negotiable, particularly if you're borrowing a substantial amount or refinancing multiple properties. Lenders regularly offer fee waivers during promotional periods or as part of retention strategies when you consider switching to a competitor.

Brokers can request fee waivers on your behalf as part of the application process, often securing concessions that aren't advertised publicly. In our experience, lenders are more willing to waive fees when the loan amount is above $500,000 or when you're consolidating debt and improving your overall borrowing capacity.

Some fees, such as settlement and discharge costs, are less flexible because they reflect third-party charges or fixed administrative processes. Focus your negotiation efforts on application fees, ongoing account fees, and valuation charges where lenders have more discretion.

How Loan Structure Affects Total Fees

A split loan, where part of your borrowing is on a variable rate and part on a fixed rate, may attract separate account fees for each loan portion. If your lender charges $10 per month per account, a two-way split means $20 per month in ongoing fees rather than $10.

Packaged loans that bundle multiple features, such as an offset account, credit card, and fee-free transaction accounts, typically carry a single annual fee rather than separate charges for each feature. For borrowers using multiple products from the same lender, this structure can reduce total costs compared to standalone accounts.

Interest-only loans sometimes carry higher ongoing fees than principal and interest loans, reflecting the lender's perception of increased risk. If you're using an interest-only structure for an investment property, confirm the total fee structure including any premium charged for the repayment type.

The call to action belongs in a conversation, not a checklist. If understanding which fees apply to your situation and how to reduce them would help you make a more informed borrowing decision, call one of our team or book an appointment at a time that works for you.

Frequently Asked Questions