Home loans explained
Understanding home loan fees
7 min read
When you’re thinking about getting a home loan it’s important to remember that it’s not just a deposit you’ll need to save up for, there are fees you’ll need to cover as well.
Buying a home is a big step, and it comes with some important financial decisions. But, there’s not much you can do about the government fees involved, and each lender charges their own fees differently, so doing some research can help you find the lowest ones on the block.
When you are buying a home and getting a home loan, it must be registered with the government. There is a fee to do this, and each state charges different amounts for it. You will be looking roughly at $120 to $180 for this fee.
A title search provides the legal details of the property you’re looking to purchase. Title searches are necessary to discover any hidden concerns about the property (e.g. encumbrances, caveats) that need to be resolved.
Priority notices protect your interests by allowing you to call “dibs” on a property you are wanting to buy. When you apply for a home loan to buy your property, a priority notice is lodged with the Land Registry and will give notice to the rest of the world about the pending transaction on that property.
Stamp duty is a government tax that applies to purchases of vehicles, insurance policies and real estate. Stamp duty for real estate can also sometimes be referred to as “land transfer duty” depending on the state you live in. Each state charges stamp duty differently and it is also dependent on the value of your property.
This is a fee you pay to your settlement agent or conveyancing lawyer (on top of any other fees they charge) for their services. At Tic:Toc, we use digital conveyancers which means there is a cheaper fee for online settlement. But there is still the option for a non-digital settlement if you’d prefer it (keep in mind that NSW, VIC, SA, and WA require online settlement, so non-digital won’t be an option there).
A conveyancer helps you understand the legal bits of the home buying process and explains the paperwork to you. They also liaise with your lender and oversee the settlement process for you. Using an online e-conveyancing platform means that customers don’t need to pay a conveyancing fee when getting a Tic:Toc home loan.
If you want to find out more about the conveyancing process, check out our article All about conveyancing.
LMI stands for Lenders’ Mortgage Insurance and it’s an insurance your lender needs to pay the insurance company when your deposit is less than 20% of your property’s purchase price. The insurance protects them in case you can’t repay your home loan. If LMI is needed your lender adds the cost of this insurance onto your loan amount. In other words, if you don’t have a 20% deposit saved but want to buy a home, you’re probably going to need to cover the cost of LMI.
You can learn more about LMI here: What is LMI?
This fee goes by many different names including: establishment fee, set-up/start-up fee, or application fee. Essentially this fee is a one-off cost for applying for a home loan. The cost of an application fee varies depending on the lender (anywhere from $150 to $700), but Tic:Toc charges no application fee at all.
When you apply for a home loan, your lender will obtain a valuation of the property you are looking at buying. A valuation determines the value of your property, which in turn helps the lender determine your Loan-to-value Ratio (LVR). Your lender will use your LVR to determine whether you will need to pay Lenders’ Mortgage Insurance (LMI), i.e. if your LVR is higher than 80% of the property’s value, you will probably need to pay LMI. A valuation can cost you between $100 to $300, but Tic:Toc absorb this fee (if you decide to get a loan with us).
A preparation of mortgage documents fee covers the cost of preparing your loan documents. Lenders will sometimes include the document preparation fee under other costs (e.g. the application fee or conveyancing fees), but because we do everything online, Tic:Toc don’t need to charge this fee at all.
You should also look at fees you may need to pay down the track. When it comes time for you to look at refinancing you may need to pay a discharge fee to close off your current loan. If you are refinancing with the same lender, it is unlikely you will need to pay this fee - but each lender is different.
A monthly service fee is charged to cover the administration costs of your loan. You’ll need to pay this fee every month for the life of your loan. As with other ongoing fees, Tic:Toc don’t charge you a monthly service fee for your home loan.
If you have a package home loan you may need to pay an annual fee. A package home loan combines your home loan with other financial products such as credit cards, offset accounts, or insurance, to give you access to discounts on these products.
If you were to redraw from your home loan after paying some additional repayments, you may incur a fee. Some lenders (like Tic:Toc) offer free redraw on your home loan, but other lenders do charge for this feature.
Just like a redraw fee, some lenders will charge you if you wish to make extra repayments on your home loan to try and pay it off quicker. The cost will vary depending on your lender, but, you guessed it, Tic:Toc doesn’t charge a fee for this (we just have an annual maximum of $20,000 p.a. extra repayments for fixed rate loans)
An offset account is an optional feature you can have on your home loan. The offset account is linked to your home loan and the interest you earn from the offset account is subtracted from the interest you pay on your loan balance. Some lenders will charge you a fee for this feature, or they will increase the interest rate of the home loan to compensate for the cost. Tic:Toc charges $10 per month, but gives you the exact same interest rate.
For more info on offset accounts, check out: What’s an offset account?
Down the road, if you decide you’d like to refinance your home loan there are some fees you should know about. When closing your old loan you’ll have a discharge fee, a deregistration fee, and a break cost fee (if you have a fixed rate loan). You can find out more about all of the costs associated with refinancing in our article What it costs to refinance your home loan.
Refinancing, well that’s a horse of a different colour. If you’re refinancing, you’ll pay some of the above fees, but there are also others that only come into play when refinancing. For an in-depth look at all the fees associated with refinancing your home loan, check out our article What it costs to refinance your home loan.
Unfortunately, there’s no way you can avoid paying all these fees, at the very least you’ll need to pay the fees set by the government. However all is not lost, if you find a lender (like Tic:Toc) that doesn’t charge their own fees you can avoid handing over a fair chunk of cash. A quick and easy way you can get an idea of the amount of fees associated with a home is by looking at the comparison rate. If the comparison rate is significantly higher than the interest rate, you can safely assume that there are extra costs associated with that home loan. Not all lenders charge the same fees so make sure you do your homework to avoid paying unnecessary fees.
Want to start your home loan research? Check out our rates and loan features here