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When you apply for a home loan, it's good to be aware of the upfront fees and charges so you're not caught off-guard. Many of these extra costs can be avoided or negotiated out of your loan contract by your Home Loan Specialist and help save you a pretty penny.
What are the upfront costs of a home loan?
Before you get a home loan, there are a few upfront costs that you may need to prepare for and take into account when budgeting to buy a home. These may include:
- Deposit — If you're purchasing a property, this is the big one. Your deposit is a percentage of the purchase price. Many buyers aim to save at least 20% of the property's purchase price in order to avoid paying Lenders Mortgage Insurance. It's always beneficial to put up the largest deposit you can reasonably afford so to lower your loan to value ratio (LVR). From the lender’s perspective, a low LVR lowers your risk as a borrower and strengthen your borrowing power.
- Application or establishment fee — A one-off payment to your lender is usually required to establish a home loan. Depending on your lender, you can sometimes negotiate to avoid this fee.
- Lenders Mortgage Insurance (LMI) — If your deposit is less than 20% of the property's purchase price, you may be required to pay LMI. It's important to remember that this insurance only protects the lender in case you fail to make your home loan repayments. Use our LMI calculator here.
- Stamp duty / transfer duty — You will need to pay this state tax at a rate according to the property value when you purchase a home. Depending on your state or territory, you may be able to avoid paying this fee if the property is worth less than $600,000. Read our guide to stamp duty here.
- Legal and conveyance fees — When purchasing a property, you'll typically need a solicitor or conveyancer to help review contract and the title transfer.
- Building inspection — A qualified building inspector will assess the property for safety and maintenance issues.
- Foreign buyer surcharge — If you are a foreign buyer in Australia, you will need to pay surcharge purchaser duty and surcharge land tax.
- Moving and cleaning costs — You may want to shop around and get quotes for these services that can help make the move into your new home easier.
Will you need to pay LMI?
See how much you might need to pay if you're low on a deposit.
How much will my repayments cost?
The terms of your home loan determine the repayment amount you'll be required to pay each month. This depends on a number of factors including your interest rate, your loan amount and whether your loan is:
- A principal and interest or interest-only loan
- Fixed rate or variable rate
- Repaid over a short or longer period
- For your own home / Investment home
Use a repayment calculator to get an estimate of how much you'll need to repay each month. With an estimate, you can find it easier to budget your daily expenses, and start better saving habits to help pay off your loan faster.
With the sizeable amount that you have to repay, you’ll certainly want to find ways to reduce the interest charged over the life of the loan. Your options usually involve making sure you always have a competitive interest rate and making extra repayments to reduce the interest charged against the loan balance. Using a redraw facility or an offset account can make your extra repayments really count. These loan features can come with fees, along with other ongoing costs.
Calculate your stamp duty in seconds
Find out how much stamp duty you might need to pay.
What are the ongoing costs of a home loan?
Along with your monthly repayments, you may also incur ongoing costs attached to your home loan. Some ongoing costs include:
- Redraw facility fees — Some lenders may charge a fee for withdrawing funds from a redraw facility.
- Offset account fee — Many lenders charge an annual fee for an offset account.
- Break fees — If you refinance or switch loans during a fixed-rate term, break fees can apply to you.
- Late payment fee / default fee — This is a penalty that is incurred when you make a required payment after the due date. How this is charged will depend on the lender.
What are the hidden costs of a home loan?
When adding up all your costs, don’t forget to ask your Home Loan Specialist about the often overlooked fees or costs that may apply to you. This could make a difference when you’re managing your repayments.
Some overlooked fees may include:
- Early exit fees — When a home loan is repaid within a certain period, this fee may be charged by the lender.
- Discharge fees — Some lenders may charge this when the home loan is paid out in full.
- Property valuation fees — Many lenders will require a property valuation be completed when buying a new property and refinancing.
By knowing all the different costs that apply to you, you can more easily plan and manage your repayments.
How to avoid these extra costs
A number of these fees such as loan setup fees can be avoided with the help of a Home Loan Specialist to negotiate on your behalf. Find out how to avoid these fees by chatting with an expert now.
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