Don't fall foul of fees
Want to reduce the cost of your home loan? Choose a loan that
charges low fees and you could save thousands of dollars over the
life of your loan.
Watch out for fees
Fees and charges can change, so always check the latest
When comparing different loans, check the
fees so you know exactly how much the loan is going to cost
You must be told about any fees or charges before you sign up
for a loan. Most credit providers publish fees and charges in their
product booklets, on their websites and in their credit
Different credit providers charge different fees. The same fee
might also be called different names by different providers. Here
are some common fees you will come across.
Also called 'application', 'up-front', 'start-up' or 'set-up'
fees. An establishment fee is a one-off payment when you start
your loan. If you are not charged an establishment fee, you may pay
higher ongoing fees.
Before looking for properties you should confirm with the lender
if a fee for LMI will be charged and how much it will be.
Lenders' mortgage insurance (LMI) is a
type of insurance that credit providers take out to protect
themselves from borrowers not being able to repay the loan.
The fee the lender charges you for LMI can be many thousands of
dollars and is usually added to your home loan amount.
Credit providers normally charge you a one-off fee to cover this
insurance if you borrow more than 80% of the value of your
Whether you are charged LMI will also depend on your loan to
value ratio (LVR). This is a percentage that is calculated by
dividing the amount of your home loan by the purchase price (or
appraised value) of the property you want to buy.
You can sometimes avoid paying LMI by saving a deposit that is
more than 20% of the value of your home. If it is not possible
for you to save this much, you'll need to factor the cost of your
credit provider's mortgage insurance into your loan.
Generally, the higher the equity you have in the property (or
the lower the LVR), the less chance the lender will charge you a
fee for LMI, and where they do, the less the fee will be.
You may get a refund of some of the LMI premium you pay if your
loan is paid out in the first year or two. But if you refinance
your home loan, you may have to pay a new LMI premium (especially
if you are increasing your loan amount).
For more information, see the Insurance Council of Australia's
FAQs on lenders mortgage
Also called 'service' or 'administration' fees. They are charged
every month or year for administering your
loan. Some ongoing fees may only be payable in certain
circumstances. For example, you might be charged a fee to redraw any
additional repayments you might have made.
Fees for breaking a fixed rate
You may be charged a 'break' fee if you break your fixed rate
mortgage. The break fee may be very high. Generally, the more
interest rates have come down since you took on the fixed rate
loan, the higher the break fee will be. You won't know how much
until the credit provider tells you.
Early exit fees
Also called 'early termination', 'deferred establishment',
'deferred application' or 'early discharge' fees. These may be
charged if you pay out your home loan in full, within a
specified period (for example, in the first 5 years). The law
limits these fees to the recovery of a credit provider's loss
caused by the early termination.
Exit fees on new loans were banned on 1 July 2011. Exit fees can
still be charged on loans signed up before 1 July 2011 but some
credit providers have removed these fees from existing loans. Other
credit providers will pay your exit fees for you when you move your
loan across to them.
Credit providers are not permitted to use exit fees to
discourage you from switching your loan or to punish you for doing
Also called 'termination' or 'settlement' fees. These may be
charged when you pay out your mortgage in full.
When you refinance your home loan you can be charged a range of
fees by your new lender. Just remember that different lenders
charge different fees and some may be negotiable.
You could be charged an exit fee, an establishment fee, a
discharge fee and a break fee (if you were on a fixed rate loan).
All these fees are explained in detail on this webpage.
Limits on interest rates and
By law you must not be charged more than 48% annually on your
home loan (this includes any establishment or other fixed
Fees can add thousands of dollars to the average 25-year
mortgage. Ask your credit provider to explain the fees on your loan
so you know what you're in for.
Last updated: 12 Aug 2015