The rate on a home loan is only part of what you pay. Upfront fees, ongoing fees and exit costs can change the true cost of a loan, so it pays to look at all of them before you apply.
If you live in Secret Harbour, you may be buying, upgrading or reviewing your loan. Many local loans are sizeable, and small fees can add up over the years.
What Fees Come With a Home Loan?
Most home loans can involve upfront costs, ongoing fees and fees when you leave or change the loan. Which ones apply depends on the lender and the product you choose.
At the start, a lender may charge an application or establishment fee, plus a valuation fee. Along the way, some loans charge a monthly or annual fee, especially packaged loans that bundle extras together. When you finish with a loan, there may be a discharge fee. If you are on a fixed rate, there may also be break costs for repaying early.
A lender with a lower rate can still cost more overall if its fees are higher. When you compare home loan products, ask for the full fee schedule and compare the total cost, not only the rate. A broker can lay these side by side for you across lenders, and our home loans page explains how we do that.
How Lenders Mortgage Insurance (LMI) Affects Your Loan Cost
Lenders Mortgage Insurance (LMI) is a one-off cost that may apply when your deposit is small compared to the property value. Whether it applies, and how much it costs, depends on your loan to value ratio (LVR) and your lender.
The insurance protects the lender, not you. Some lenders let you add the premium to the loan. That spreads the cost, but you then pay interest on it for as long as it sits in the loan. If you are buying your first home, it is worth asking early whether a larger deposit, or a different lender, changes the LMI outcome. Our first home buyers page covers what to ask before you commit.
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Book a chat with Mel at Down to Earth Mortgage Broking today.
Is an Offset Account Worth the Annual Package Fee?
An offset account is worth the fee only if the interest it saves is higher than the fee itself. That depends on how much money you keep in it and for how long.
As an example, consider a Secret Harbour buyer with a $600,000 owner occupied home loan. The illustrative rate is 6.75% p.a., on a variable rate, with principal and interest repayments over 30 years. That works out to about $3,892 a month. The lender offers a linked offset with a package fee of $395 a year. This fee is an example only, as fees differ between lenders.
The buyer keeps an average of $20,000 in the offset account. At 6.75%, that balance cuts the interest charged by about $1,350 a year. After the $395 fee, the buyer is about $955 ahead each year. If the buyer only kept $4,000 in the account, the interest saved would be about $270 a year. That is less than the fee, and the package would cost more than it saves.
The trade-off is that the money in an offset is not earning interest in a savings account, and a package fee is charged whether you use the offset well or not. Check your habits first. If your savings tend to be low or you spend them quickly, a loan with no fee may suit you better.
I will always show you the exact amount needed in your offset account to balance fees and have a solid discussion about this. It's honestly so great to visually see and then decide if an offset is right for you, I love my clients to actually understand what they are choosing and why.
Fixed Rate Break Costs and Other Exit Fees
Break costs are charged by some lenders when you repay or refinance a fixed rate loan before the fixed term ends. The amount depends on your lender and on how rates have moved since you fixed.
This matters if you are considering a split loan, where part of the loan is fixed and part is variable. The fixed portion gives repayment certainty, but extra repayments or an early exit from that part can bring costs. Ask your lender how break costs are calculated before you fix, and what extra repayments the loan allows.
If your fixed term is ending soon, our fixed rate expiry page explains your options. If you are thinking of switching lenders, check the discharge fee on your current loan against what you might save by refinancing.
How to Keep Home Loan Costs in Check Before You Apply
The most direct way to keep costs down is to compare total loan costs across several lenders before you apply for a home loan. Compare the fees, features and rate together.
A few habits help. Ask whether the lender will reduce or waive fees, as some will. Question any feature you will not use, such as an offset or redraw, if it comes with a fee. Use a repayment calculator when calculating home loan repayments so you see the monthly cost of each option. Your borrowing capacity also affects which lenders suit you, so know that number before you start looking.
If you already have a loan, a loan health check can show whether your current fees and rate still suit you. It is worth reviewing your fees from time to time.
Down to Earth Mortgage Broking can compare options from our panel of lenders and explain the cost of each in plain language. Our Secret Harbour mortgage broker page tells you more about how we work with local residents. To talk through your own numbers, book an appointment at a time that works for you. Call Mel today.
