Avoid These 7 Variable Rate Loan Fees First Home Buyers Miss

Variable rate loans come with more than just the advertised interest rate.

Most first home buyers focus on the rate and forget about the upfront application fees, ongoing account charges, and discharge costs that sit on top of your repayments. Some lenders waive certain fees, others bundle them into the loan, and a few charge you twice for the same thing under different names. If you are buying with a 5% deposit under the Australian Government 5% Deposit Scheme, you will skip lenders mortgage insurance, but every other fee still applies.

Application Fees That Show Up Before Settlement

Most lenders charge an upfront application fee, also called an establishment fee or loan processing fee, ranging from $0 to around $800. This fee covers the cost of assessing your loan and preparing the paperwork. Some lenders waive it as part of a promotion, others fold it into the loan balance, and a handful require payment upfront before they will process your application.

Consider a carpenter applying for a variable rate loan with a 10% deposit. The lender quotes no application fee but charges a $395 settlement fee and a $200 valuation fee. Another lender charges a $600 application fee, no settlement fee, and includes the valuation. The second lender looks more expensive until you add it up. The first lender costs $595 in upfront fees, the second costs $600. The difference is $5, but the structure makes it look like a bigger gap.

Some lenders let you add the application fee to the loan balance rather than paying it out of pocket. That sounds convenient, but you will pay interest on that fee for the life of the loan. A $600 fee added to a 30-year loan at current variable rates will cost you closer to $1,200 once you factor in the interest.

Ongoing Monthly Account Fees

Most variable rate home loans charge a monthly account-keeping fee, typically between $10 and $15 per month. That works out to $120 to $180 per year, or $3,600 to $5,400 over a 30-year loan term. Some lenders waive this fee if you hold a linked transaction account or credit card with them. Others waive it for the first year, then start charging from year two.

A plumber we worked with refinanced to a loan with no monthly fee and saved $180 per year compared to the loan they were leaving. Over the remaining 27 years of their loan, that adds up to $4,860. They could have put that money into their offset account instead, which would have reduced the interest they paid on the loan balance.

Offset Account and Redraw Fees

An offset account sits alongside your home loan and reduces the interest you pay by offsetting your loan balance with the cash in the account. Most lenders offer offset accounts on variable rate loans, but some charge a monthly fee for the privilege, usually between $10 and $20 per month. A few lenders include the offset account at no extra cost.

Redraw lets you pull out any extra repayments you have made above the minimum. Some lenders allow unlimited free redraws, others charge a fee each time you access the money, and a few restrict how often you can redraw or set a minimum redraw amount. If you plan to make extra repayments and access them later, check whether the lender charges a redraw fee and how often you can use it.

A concreter buying their first home with a 10% deposit chose a variable rate loan with a $15 monthly offset fee and unlimited free redraw. They compared it to a loan with no offset fee but a $50 charge per redraw. The concreter planned to park their tax return and any lump sum payments in the offset, then redraw when they needed cash for tools or a ute upgrade. The $15 monthly offset fee cost them $180 per year, but they avoided the $50 redraw fee every time they pulled money out. Over five years, they made eight redraws. The offset fee cost $900, the redraw option would have cost $400 in fees alone. The offset still won because the interest saved from keeping cash in the account outweighed the monthly fee.

Valuation and Settlement Fees

Lenders require a property valuation before they approve your loan. The valuation fee typically ranges from $150 to $400 depending on the property type and location. Some lenders include the valuation fee in the application fee, others charge it separately, and a few waive it during promotional periods.

Settlement fees, also called documentation fees or loan establishment fees, cover the cost of preparing and lodging the mortgage documents. These range from $0 to $600. Some lenders roll this into the application fee, others charge it separately at settlement.

If you are applying for a low deposit loan with a non-major lender, check whether they charge both an application fee and a separate settlement fee. You might end up paying twice for what looks like the same service.

Lenders Mortgage Insurance

Lenders mortgage insurance protects the lender if you default on the loan. It applies when you borrow more than 80% of the property value. The premium is calculated as a percentage of the loan amount and varies depending on your deposit size and the lender.

If you buy with a 5% deposit outside the Australian Government 5% Deposit Scheme, LMI can add tens of thousands of dollars to your upfront costs. If you qualify for the scheme, no LMI applies regardless of your deposit size. LMI is not a loan fee in the traditional sense, but it is a cost that sits on top of your loan and catches plenty of first home buyers off guard.

Some lenders offer LMI waivers for certain professions or if you meet specific criteria. A few non-major lenders waive LMI for tradies borrowing up to 90% of the property value if you can show steady income and a clean credit file.

Discharge Fees When You Refinance or Sell

When you sell the property or refinance to another lender, your current lender charges a discharge fee to remove the mortgage from the title. This fee ranges from $150 to $500 depending on the lender. Some lenders also charge a government registration fee on top of the discharge fee.

You will not pay this fee until you leave the loan, but it is worth knowing upfront. If you plan to refinance in a few years to get a lower rate, factor the discharge fee into your calculations. A $400 discharge fee plus a $300 application fee at the new lender means you need to save at least $700 in interest to break even in the first year.

Package Fees and Annual Fees

Some lenders offer home loan packages that bundle your mortgage with a transaction account, credit card, and discounted insurance. The package usually comes with an annual fee, typically between $300 and $400. In exchange, you get a discount on your home loan rate, often 0.10% to 0.20% below the standard variable rate, plus fee waivers on certain accounts.

A bricklayer buying with a 10% deposit compared a standard variable loan with no package fee to a packaged loan with a $395 annual fee and a 0.15% rate discount. On a loan at the median property value in their area, the rate discount saved them around $600 per year in interest. After paying the $395 package fee, they were still $205 per year ahead. The offset account and transaction account fees were also waived under the package, saving another $180 per year. The package fee paid for itself, but only because the bricklayer planned to use the offset and needed the transaction account anyway.

Call one of our team or book an appointment at a time that works for you. We will walk through the fee structure of every lender on your shortlist and show you the total cost over the first five years, not just the rate on the brochure.

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