Variable Rate Loans: What Not to Ignore on Fees & Costs

Variable rates get most of the attention, but the fees layered on top can add thousands to what you actually pay.

If you're a painter looking at buying your first home, the sticker price on a variable rate loan is only part of the picture. Application fees, valuation charges, settlement costs, and ongoing account keeping fees stack up quickly. Some lenders waive certain fees to look competitive while loading others. Some charge monthly fees that compound over years. Understanding what you're actually paying means looking past the rate and breaking down every line item before you sign.

Application Fees and Upfront Charges

Most lenders charge an application fee between $300 and $600 to process your loan, though some waive it entirely. This covers credit checks, documentation review, and assessment work. You'll also pay a valuation fee, typically $200 to $400, which covers the cost of an independent valuer inspecting the property to confirm it's worth what you're borrowing against. Settlement fees, charged by the lender's solicitor to finalise the loan, usually sit between $150 and $300. These three charges alone can add $1,000 or more before the loan even settles.

Consider a painter buying a unit with a 10% deposit. The lender quotes a variable rate and waives the application fee, but the valuation still costs $350 and settlement adds another $250. If you're also paying Lenders Mortgage Insurance because your deposit is under 20%, that's another few thousand on top. The rate might look decent, but the upfront bill can blow out if you're not counting every charge.

Lenders Mortgage Insurance When You're Under 20% Deposit

Lenders Mortgage Insurance is charged when your deposit is less than 20% of the property's value. It protects the lender if you default, but you pay the premium. The cost depends on your deposit size and loan amount. A 10% deposit might attract an LMI premium of $5,000 to $15,000 depending on the purchase price. A 5% deposit pushes that figure even higher.

If you're applying through the First Home Loan Deposit Scheme, the government guarantee lets you borrow with a 5% deposit without paying LMI. That scheme caps the number of places available each financial year, so timing matters. Outside that scheme, LMI is a real cost you need to factor into your budget. Some lenders let you capitalise it into the loan, which means you're borrowing more and paying interest on the premium over the life of the loan.

Ongoing Account Fees That Add Up Over Time

Variable rate loans often come with monthly or annual account keeping fees. These range from $10 to $30 per month, which is $120 to $360 per year. Over a 30-year loan, that's $3,600 to $10,800 in fees that have nothing to do with interest. Some lenders waive account fees if you hold a transaction account or offset account with them. Others charge the fee regardless.

If you're also paying for an offset account, that might add another $10 to $15 per month. An offset account links to your loan and reduces the interest you pay by offsetting your savings balance against the loan principal. It's worth the fee if you keep a decent balance in the account, but if you're running close to zero most months, you're paying for a feature you're not using.

Redraw Fees and Access Restrictions

Many variable rate loans include a redraw facility, which lets you access extra repayments you've made above the minimum. Some lenders charge a fee each time you redraw, typically $10 to $50 per transaction. Others cap the number of redraws per year or require a minimum redraw amount. If you're making extra repayments to cut interest and want the flexibility to pull that money back out when work slows down, redraw fees can sting.

An offset account avoids this problem because your money sits in a separate transaction account, so you can access it anytime without fees. But if the offset account itself costs $15 a month and your loan has a redraw fee of $20 per transaction, you need to work out which option suits how you actually manage your money. In our experience, tradies who get paid irregularly prefer offset accounts because they don't want to ask permission or pay a fee to access their own cash.

Discharge Fees When You Refinance or Sell

When you pay off your loan or refinance to another lender, the original lender charges a discharge fee to remove the mortgage from the title. This usually costs $150 to $400. If you refinance after a couple of years to grab a lower rate, that discharge fee is part of the exit cost. Some lenders also charge a loan termination fee if you close the loan within a certain period, though this is less common on standard variable loans than on fixed rate products.

If you're comparing two variable rate loans and one has a $400 discharge fee while the other has none, that difference matters if you think you might refinance or sell within a few years. Painters moving between jobs or upgrading to a bigger place as their income grows need to account for exit costs when weighing up loan features.

Stamp Duty Concessions and First Home Owner Grants

Stamp duty is a state government charge on property purchases, and first home buyers in most states get concessions or exemptions if the property price sits below a certain threshold. In some states, painters buying a home under $600,000 might pay no stamp duty at all. That can save $10,000 to $30,000 depending on the purchase price and location. You'll also need to check if you're eligible for a first home owner grant, which varies by state but typically applies to new builds rather than established properties.

These aren't loan fees, but they're part of the total cost of getting into your first home. If you're buying an established unit and you qualify for a stamp duty concession, that frees up cash you'd otherwise need to cover upfront. If you're buying new or building, the first home owner grant might give you another $10,000 to $15,000 to put toward your deposit or cover other costs. Check your state's revenue office website for current thresholds and eligibility rules.

Comparison Rate vs Advertised Rate

The advertised interest rate on a variable loan doesn't include fees. The comparison rate does. It's a single percentage figure that rolls the interest rate and most standard fees into one number, making it easier to compare loans. A loan with a 6.00% interest rate and $395 in annual fees might have a comparison rate of 6.08%. Another loan with a 5.95% interest rate but $600 in annual fees might have a comparison rate of 6.10%.

Comparison rates assume a $150,000 loan over 25 years, so they're not perfect for every situation, but they're a useful shortcut. If you're looking at several variable rate loans and the comparison rates are all within 0.05% of each other, the difference in total cost is minimal. Focus instead on features like offset accounts, redraw terms, and whether the lender understands self-employed income if you're working for yourself as a painter.

You need to know what you're signing up for before the paperwork lands. Call one of our team or book an appointment at a time that works for you.

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