There are loads of sneaky fees and charges attached to mortgages these days, making it very easy for borrowers to underestimate the costs of getting a home loan. We pinpoint all of the potential expenses involved and, more importantly, show you how to avoid them!
Getting a home loan can be a costly exercise, which is a fact that catches many property buyers – particularly first timers – off guard.
All of the fees and charges involved can add up to many thousands of dollars. In fact, it’s estimated that on an average mortgage, you’ll spend an additional 5-8% of the value of the mortgage in lender and government fees and charges.
So what are all of these expenses, and how can you avoid them?
- Application fees
These can range from no application fee through to $800, depending on the lender. This is a fee charged at the banks discretion, and covers nothing more than the bank accepting and processing your loan application.
How to avoid it: Often you can obtain a loan without paying an application fee if you’re an existing customer, or if the bank is running a promotion. Don’t be afraid to ask.
- Loan establishment fees
Also known as a start up or upfront fees, these range between lenders – and they can be hefty. You can expect to pay anything up to $2,000 in start up expenses, which includes everything from setting up the loan to lender legal fees and the cost of obtaining a valuation.
How to avoid it: Shop around and discuss your options with your lender. These costs vary widely between lenders, so be prepared to negotiate: you never know what fees they may be willing to waive or reduce if you simply ask!
- Lenders Mortgage Insurance
If you’re borrowing more than 80% of the value of the property, you’ll need to pay a one-off lenders mortgage insurance (LMI) premium. The purpose of LMI is to protect the bank if you default on your home loan, so it doesn’t personally offer you any coverage. It is charged as a percentage of your overall loan amount.
How to avoid it: Save the largest possible deposit. You only pay LMI if your deposit is less than 20%, and the bigger your deposit, the lower the LMI premium.
- Stamp duty
This is a large fee that is charged to all homebuyers by the state government. It is calculated as a percentage of the purchase price; in some states or territories, a full or partial exemption may apply for first homebuyers and/or owner-occupiers.
How to avoid it: If you live in your investment property for 6-12 months prior to renting it out, you may be able to access a fee exemption or reduction. Check out the rules that apply in your state or territory.
- Ongoing loan fees
Many mortgages attract regular account keeping fees that are charged at a rate of $5-$15 per month. Over 12 months, this can quickly add up to a couple of hundred dollars a year!
How to avoid it: Shop around. Many non-bank lenders don’t charge ongoing fees, and some banks offer packages that allow for fee-free monthly banking, so be sure to shop around for the best deal.