It’s an exciting time when we find the house we want, and finally have approval for the money we need to buy it! Because that’s the reality now, most of us rely on loans to fund our home buys!
We’ve talked about the benefits of fixed vs variable loans, and what to look out for in comparing those. But let’s drill down into the hidden costs of fixed loans.
Always, always, always read the Terms and Conditions before signing on the dotted line, so you know exactly what you are getting yourself into, especially if you are thinking of paying your mortgage off sooner than the contract states.
You might think you’re protected should you need or want to get out of this contract. But when the federal government stepped in and banned exit fees on all new variable rate mortgages in 2011, fixed rate mortgages were not included in the ban.
So if you ARE planning on paying your mortgage off sooner than expected, a variable rate mortgage may be the one for you, or even better you could split the loan so you have the portion you know you can’t pay back for a period in the fixed portion, and the amount you believe you can pay back faster in the variable portion.
We all know that buying a house is a long-term financial commitment, so don’t forget to ask the experts for help. There’s always somewhere to go, and at HomeSource we have a property lawyer service which is very affordable and you can ask any questions about the buying process. Click here and find out more about HomeSource Access.
So back to those pesky hidden fees on fixed rate loans…
Hidden early exit fees and break cost fees are the ones to watch out for, as most lenders will charge you a hefty exit fee for paying your loan off early. Below are some costs you need to keep an eye out for, when opting for a fixed rate loan. But make sure you always check with your own lender before you do anything as the fees all differ between them.
An establishment fee is a one-off payment when you start your loan. Usually ranging from $600 - $1,000.
An ongoing fee is charged every month or year for administering your loan – and this is usually around $10 a month.
Break cost fee
Break cost fees, also known as; exit fees, early repayment adjustment fees or prepayment fees, are charged if you make extra repayments on your loan, pay your loan off in full or decide to switch to another loan type such as a variable rate loan.
Most lenders will allow you to pay a small amount off your loan each year without being charged, this can range from $10,000 to $30,000, however if you pay more than this amount you may incur a hefty fee.
How are break cost fees calculated? Well they are essentially based on three factors: the length that remains on your loan, what interest rate you are paying (compared to your current lender’s current fixed rate), and the amount you initially borrowed.
A discharge fee, also known as a termination fee or settlement fee, will be charged when you pay your mortgage in full. This is normally $150 and covers the lenders legal costs.
So now you’re aware of all the hidden costs, you know exactly what questions to ask your lender before signing into anything. And don’t forget here at HomeSource have experts on hand to help with any questions you have. Visit www.homesource.com.au/access or call us on 1300 733 420 to sign up for 60 minutes of legal advice over the phone. What more useful help could you find!