There are additional upfront, ongoing and exit costs involved with a home loan that borrowers will have to pay out of their own pocket. These fees vary between lenders, so it is important to understand what you are getting into so you can make an informed decision and choose the best product for you. This guide will explain some common home loan fees and costs.
Upfront Fees
Application/Establishment Fee
Borrowers are charged this one-time fee at the start of their application for the processing, documentation and set-up of their loan.
Valuation Fee
This fee is used to cover the cost of the property’s assessment by a third party valuer and varies depending on the property type, location and value. The valuation determines if the loan amount and deposit is appropriate for the property being purchased and formulates the Loan to Value Ratio (LVR).
Conveyancing Fee
Conveyancing is the process of transferring ownership of the property title from the seller to buyer. Conducted by a conveyancer or solicitor, these fees can either be fixed or adjusted depending on the property price and the individual conveyancers fee structure.
Legal Fee
All the legal paperwork that accompanies purchasing a property with a mortgage requires the services of a legal team.
Settlement Fee
To complete the sale of the property, lenders may charge a settlement fee to cover loan origination, credit reports and any other administration associated with the settlement of the loan.
Lenders Mortgage Insurance (LMI)
If the borrower’s deposit is less than 20% of the property value for the home loan, the lender will most likely charge LMI. It is used as an insurance policy that covers lenders in case of a default.
Stamp Duty
Not all costs come from the lender, some are required by the government. Stamp duty is a tax that state and territory governments charge for the transfer of ownership when a property is purchased. Depending on the borrower’s situation, where they live and the cost of property, stamp duty is another major cost that needs to be accounted for.
Ongoing Fees
Annual Fee
Package home loans with a number of different products bundled together can incur an annual cost. Reduced rates or discounted products are usually accompanied with this yearly expense.
Monthly service Fee
Also known as ‘loan service fees’, some home loans may include a monthly out of pocket expense that covers the administration and servicing of the home loan.
Late Payment Costs
This is a fee that all borrowers should aim to avoid as it is only incurred if the minimum monthly repayment is not fulfilled by the due date.
Exit Fees
Discharge Fee
The admin cost associated with loan settlement, refinancing your home loan or switching lender may be passed on to the borrower as a discharge fee.
Early Exit Fee
Paying off the loan’s principal early may incur a loss to the lender and will likely be passed onto the borrower as an early exit fee.
Don’t be overwhelmed by the various fees associated with your home loan. Your lender or broker can run you through any of these costs so you can budget accordingly.
At WLTH, we aim to be as transparent with our fee structure to make our clients comfortable with their home loan.
