Understanding the Basics of Home Loan Costs and Fees

The interest rate is only one part of what a home loan costs you. Fees, features and the way your loan is structured all shape the total, and they are worth a quiet look before you sign anything.

If you are weighing up a home loan in Point Cook, it helps to know which costs are one-off and which ones keep showing up year after year. Once you can see them clearly, comparing lenders feels much calmer.

What Fees Come With a Home Loan?

Home loan fees fall into three groups: costs to start the loan, costs to keep it, and costs to leave it. Not every lender charges all of them, and the amounts vary, so it is worth asking for a full list in writing.

At the start, some lenders charge an application fee or a valuation fee. During the loan, you may pay an ongoing or annual fee, often tied to a package that bundles features together. When you leave, some lenders charge a discharge fee, and fixed rate loans can carry break costs if you exit early. If your deposit is small, Lenders Mortgage Insurance (LMI) can also be a significant cost. It is a one-off premium that protects the lender, and it can sometimes be added to the loan amount, which means you pay interest on it.

You can read more about how we approach these choices on our home loans page.

Why Does the Comparison Rate Matter?

A comparison rate shows the interest rate and certain fees rolled into a single figure, so it gives a fuller picture than the headline rate alone. It is a useful starting point when you compare rates, though it does not capture every cost or feature.

Two loans with the same advertised rate can cost quite different amounts once fees are included. A loan with a slightly higher rate and no annual fee may suit one borrower, while a lower rate with a package fee may suit another. Your loan size, how long you plan to keep the loan and whether you will use an offset account all change the answer.

Do Package Fees Pay for Themselves?

A package fee pays for itself only if the rate discount and features save you more than the fee costs. The gap between the two is often narrower than it looks.

As an illustrative example, consider a borrower with a $600,000 loan. Loan A is a package at 6.75% p.a. with a $395 annual fee. Loan B has no annual fee but a rate of 6.85% p.a. That 0.10 percentage point difference is about $600 a year in interest at the start of the loan. After the $395 fee, Loan A is roughly $205 ahead in the first year.

The outcome depends on two things. As the balance falls, the interest saving shrinks while the fee stays the same, so the gap narrows over time. And if the discount is reduced later, the advantage can disappear. This borrower would be wise to ask the lender whether the discount is ongoing, and to review the loan every year or so. A loan health check is a gentle way to do that.

How Much Will Repayments Be on a Typical Loan?

Repayments depend on the loan amount, the interest rate and the loan term, so the quickest way to see yours is to run the numbers. As an illustration only, a $600,000 loan over 30 years at 6.75% p.a. with principal and interest repayments comes to about $3,892 a month.

That figure is based on the illustrative rate, not a quote. Your own rate will depend on your deposit, your lender and your circumstances. Our mortgage repayment calculator lets you test different amounts and terms at your own pace, which is a calming way to see what feels comfortable.

Can You Reduce Ongoing Costs With an Offset Account?

An offset account can reduce the interest you pay, because the balance in it is netted against your loan balance each day. The trade-off is that some loans with offsets carry a higher rate or an annual fee, so the saving needs to outweigh that cost.

It works best when you keep a meaningful balance in the account, such as your savings or pay. Money in an offset stays accessible, which many borrowers find reassuring. If the account sits near empty, you may be paying for a feature you are not using. A fixed rate loan may limit offset use, so check this before choosing between fixed, variable or a split rate.

How Does Your Deposit Affect Your Costs?

A smaller deposit usually means a higher loan to value ratio (LVR), and that can bring LMI and, depending on the lender, a higher rate. A larger deposit generally gives you more choice and fewer added costs.

Some borrowers may be able to reduce or avoid LMI through certain professions or guarantor arrangements, depending on the lender. We explain these on our LMI waivers page. If you are starting out, our Point Cook first home buyers page covers the process in a calm, step-by-step way.

What to Ask a Lender About Fees

The most useful question is what this loan will cost you over the time you expect to hold it. Ask about every fee at the start, during and at exit, and whether any discounts are time-limited.

It also helps to ask what happens if you refinance, make extra repayments or switch from a variable rate to a fixed rate. A broker can ask these questions for you across many lenders, which takes the weight off your shoulders. Borrowers can choose from many lenders, so there is no need to settle for the first offer.

Call one of our team or book an appointment at a time that works for you. We will walk through the costs of your home loan options together, answer your questions at a comfortable pace and help you choose a loan you can feel settled about. You can also start on our Point Cook home loans page or go straight to booking an appointment.

Frequently Asked Questions