Broker guide
Home Loan Fees: Upfront, Ongoing and Exit Costs
Which home loan fees will the client actually pay? Separate application, ongoing and exit charges, then compare the cost over the expected loan period.
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Home loan fees are charges for setting up, maintaining or closing a loan, in addition to interest. Compare them over the time you expect to keep the loan, with government charges and professional costs shown separately. A fee added to the loan still costs money and attracts interest while it remains unpaid.
The useful comparison has two results: the cash needed to complete the transaction and the borrowing cost over the chosen period. Keeping those results separate prevents a financed fee from disappearing from the assessment.
Upfront Home Loan Fees
Upfront home loan fees cover the application and work needed to establish the loan, but several parties can receive the money. The fee name alone doesn’t establish whether the lender keeps it or passes it to someone else.
Upfront Charges and Their Recipients
| Charge | What triggers it | Who receives the money |
|---|---|---|
| Application or establishment | Applying for or opening the loan, as the offer specifies | Lender |
| Valuation | A property assessment required for the application | Lender or external valuer, depending on the arrangement |
| Lender legal or documentation | Preparing or reviewing loan and security documents | Lender or its appointed legal provider |
| Lender settlement | Arranging loan funding and settlement | Lender or settlement provider |
| Conveyancing or legal advice | Work for the buyer or refinancing borrower | Client’s conveyancer or solicitor |
| Transfer duty and registration | A taxable transfer or registration of title documents | Relevant government authority |
| Electronic settlement service | Processing an electronic property settlement | Settlement platform provider |
Application and establishment can be different labels for the same charge. Reconcile the offer and fee schedule before adding both to the budget. A separate valuation or settlement charge can still apply when the advertised application fee is zero.
CommBank’s mortgage fee schedule separates establishment and settlement fees and states that establishment doesn’t cover legal costs. It also distinguishes government charges from bank fees. Use that distinction when explaining why a waived lender fee doesn’t remove the client’s conveyancing bill or registration costs.
If lenders mortgage insurance (LMI) applies, show the premium separately. LMI protects the lender, and financing the premium increases the amount the borrower repays. Confirm whether the approved loan allows that extra amount before treating the premium as financed.
Ongoing Fees and Optional Features
Ongoing fees must be counted for the period you expect to hold the loan. Monthly account fees, annual package fees and charges for optional features can produce different totals even when the advertised interest rates match.
For example, NAB’s home-loan fee schedule separates monthly loan service fees from annual package fees. The amount and fee type depend on the product. A package can replace particular account charges, so apply the selected product’s waivers before calculating a total.
A fictional $300 annual package fee costs $900 across three annual charges. A fictional $10 monthly service fee costs $360 over 36 months. These figures compare fees only, before differences in interest or features.
Use the actual charging events when the client plans to leave between anniversaries. An annual fee charged in advance can produce a different cost from a simple monthly pro-rata estimate. Record whether the terms provide any refund.
Assess the Feature the Client Will Use
An offset account reduces the loan balance used to calculate interest by the eligible offset balance. Compare the expected interest saving with any extra account fee and any rate difference for the offset product.
A fictional constant $10,000 offset balance saves about $600 over a year at a constant 6% interest rate. A $300 annual feature cost would leave about $300 before any difference in the loan rate. Real balances change, so calculate with the client’s likely balance instead of assuming their salary stays in the account all year.
ASIC’s offset account guidance recommends considering fees and the interest rate alongside the feature. Apply the same approach to redraw or other paid features: include the charges triggered by how the client plans to use them.
Refinance, Early Repayment and Exit
Home loan exit costs can include a discharge fee and, for a fixed-rate loan, a separate break cost. Closing a variable-rate loan doesn’t make every discharge charge an early repayment penalty.
A discharge fee covers closing the loan and releasing its security. ASIC’s early termination fee guidance distinguishes standard discharge charges from fees imposed because a loan ends early. Government registration charges can also arise when the old mortgage is removed and the new one registered.
Fixed-rate break costs depend on the lender’s contract and the change being made. Full repayment, switching during the fixed period or extra repayments beyond the permitted limit can trigger a calculation. NAB describes its economic cost as an estimate of loss from the prepayment and gives its own permitted repayment threshold.
Obtain a payout quote for the intended settlement and separate the balance from each exit charge. Break-cost estimates have a validity period and can change before settlement. Carry the quoted amount into the refinance calculation without presenting a generic percentage as the lender’s result.
Fee Waivers and Cashback Conditions
For each fee waiver or cashback in the client’s offer, record the amount and the condition attached to keeping it. Read any repayment clause alongside the intended holding period. Include a recovery amount in the early-exit scenario only where the actual terms require it.
Distinguish a fee that becomes payable in future from a refund of a past benefit. Losing a package waiver on the next account anniversary doesn’t, by itself, mean every previously waived fee must be repaid.
Keep a broker commission clawback separate from the borrower’s fees. A lender recovering commission from a broker doesn’t establish that the borrower owes the same amount. Include a client-paid broker fee only under the client’s own disclosed agreement.
Put the Costs in One Comparison
Compare the same borrowing amount and repayment assumptions over the same holding period. Show cash-paid costs and financed costs separately, then include the interest charged on financed amounts.
Moneysmart’s home-loan guidance recommends obtaining a personalised loan fact sheet for the amount being borrowed. Use the lender’s offer to reconcile the fees and repayment schedule before the client chooses.
Fictional Purchase Example
The following figures are fictional and assume the lender permits the stated costs to be financed. The borrower needs $500,000 in loan funds for the purchase before these charges.
| Cost | Paid from cash | Added to loan |
|---|---|---|
| Establishment | $0 | $600 |
| Valuation | $300 | $0 |
| Conveyancing | $1,500 | $0 |
| Government registration | $900 | $0 |
| LMI premium | $0 | $8,000 |
| Total | $2,700 | $8,600 |
The loan starts at $508,600 and the listed costs require $2,700 cash. The combined cost is $11,300 before interest. The purchase deposit and any transfer duty sit outside this example and must be added to the full funding requirement.
At a fictional constant 6% rate, leaving the extra $8,600 outstanding for a full year would add $516 in interest. With principal repayments, calculate interest on the reducing balance instead. The funding position calculator helps reconcile the transaction’s sources of funds with the costs payable at settlement.
Fictional Refinance Example
Assume an existing loan payout of $400,000, including accrued interest but excluding the charges below. The refinance has no fixed-rate break cost or incentive recovery in this fictional case.
| Cost | Paid from cash | Added to new loan |
|---|---|---|
| Existing lender discharge | $350 | $0 |
| New lender establishment | $0 | $600 |
| Conveyancing | $500 | $0 |
| Government registration | $500 | $0 |
| Total | $1,350 | $600 |
The new loan starts at $400,600 and requires $1,350 cash for the listed charges. Count $1,950 in transaction costs before interest. If the new package also costs $300 a year, three annual charges add $900.
For a simple estimate, suppose interest and ongoing-fee savings total $150 a month before these one-off costs. Recovering $1,950 takes 13 months, before interest on the financed $600. A full comparison must also account for balances and repayment timing, particularly if the new loan extends the remaining term.
What the Comparison Rate Covers
A comparison rate combines interest with most fees into an annual rate. ASIC’s explanation of comparison rates excludes government charges and charges triggered only in particular circumstances, such as early repayment.
Keep conveyancing and other external transaction costs as separate lines. Include break costs or incentive recovery where the planned transaction triggers them. Compare any advertised comparison rate’s loan amount and term with the client’s actual borrowing assumptions.
The comparison rate calculator can model the borrowing terms and fees entered. Before recommending an offer, reconcile its result with the lender’s documents and retain both the cash requirement and the cost over the client’s expected holding period.
