Nobody likes fees. But most people realise that delivering a product or service costs money, and therefore will incur some sort of charge.
Most people, then, find fees reasonable – provided they’re clearly disclosed. What people find unreasonable, though, are hidden fees.
Home loans come with fees. Ethical lenders like Well Money are fully transparent about those fees. Some lenders, sadly, are not.
With that in mind, we’re going to take you through the full range of potential home loan fees, so you’re able to make an informed decision when you do your research.
Upfront and discharge fees
It takes lenders time and manpower to set up a mortgage, which is why you’ll typically be charged an establishment fee at the start of the loan. (You might also be charged a settlement fee, a valuation fee and a solicitor’s fee; however, these fees are charged by third parties, not your lender.)
By the way, just as it takes time and manpower for a lender to set up a mortgage, it also requires work to close a mortgage. That’s why you’ll typically be charged a discharge fee when you close your home loan account – either because you’ve paid it off or refinanced to another lender.
If your mortgage is a fixed-rate loan, you might be charged a break fee if you end the loan early – for example, two years into a five-year term.
If you refinance, your lender might charge you an exit fee. Well Money doesn’t charge exit fees, but some lenders do for home loans that were signed before 1 July 2011.
Most people expect to be charged some sort of fee at the start of the mortgage, but some people don’t realise they might be charged ongoing fees throughout the life of the loan.
Some lenders charge a monthly fee; others charge an annual fee. You might also be charged an offset account fee or a redraw facility fee for using those features.
Most lenders are supportive of borrowers who get ahead of their mortgage, but some will charge an additional repayment fee if you pay off your loan ahead of schedule.
If you ask your lender to switch your loan from one property to another, you might be asked to pay a portability fee for the work involved.
Small fees can make a big difference
The moral to the story is to shop around and pay close attention to fees when comparing lenders. You can avoid some fees by choosing the right home loan, either by doing your research when buying your property or by refinancing to a better lender during your mortgage.
Seemingly small fees can make a big difference over the life of the loan. For proof, compare the pair.
The Low Rate Home Loan from Well Money charges an interest rate of only 1.99% (at the time of writing June 2021) and has no monthly or annual fees. So if you borrowed $500,000 over 30 years and repaid your loan in monthly installments, you’d pay $664,415 over the life of the loan.
Now imagine you went to a different lender and borrowed the same amount and were charged the same interest rate – but this time you were also slapped with a $300 annual fee. In that case, you’d pay $673,415 over the course of the 30 years. So that seemingly insignificant annual fee would end up costing you $9,000.
Always make sure you get a copy of the Key Fact Sheet from the lenders you want to compare as it will show you a direct comparison for your own situation, not a hypothetical situation like advertised rates do.