How to Understand Variable Rate Home Loan Fees and Costs

Understanding Variable Rate Home Loans

When you're looking to apply for a home loan in the Burpengary and Moreton Bay Region, understanding the fees and costs associated with variable rate home loans is crucial to making an informed decision. While many borrowers focus solely on the interest rate, the additional fees can significantly impact the total cost of your home loan over time.

A variable interest rate home loan means your interest rate can change during the life of your loan, moving up or down based on market conditions and decisions made by your lender. This flexibility can work in your favour when rates decrease, potentially lowering your repayments. However, it's important to understand all the costs involved beyond just the variable home loan rates.

Common Fees Associated with Variable Rate Home Loans

When comparing home loan options, you'll encounter various fees that can add thousands of dollars to your loan amount. Here are the most common costs you should be aware of:

Application Fees

Many lenders charge an application fee (sometimes called an establishment fee) when you apply for a home loan. This fee typically ranges from $250 to $600 and covers the cost of processing your home loan application. Some lenders may waive this fee, so it's worth exploring different home loan products when you compare rates.

Valuation Fees

Before approving your loan, lenders need to determine the value of the property you're purchasing. Valuation fees can range from $200 to $500 or more, depending on the property's location and value. This helps determine your loan to value ratio (LVR), which affects whether you'll need to pay Lenders Mortgage Insurance (LMI).

Ongoing Account Fees

Some variable rate home loans include monthly or annual account keeping fees, typically between $10 and $30 per month. These fees cover the administration of your loan account. When calculating home loan repayments, remember to factor in these ongoing costs.

Settlement Fees

Settlement fees (also called documentation fees) cover the legal and administrative costs of finalising your loan. These typically range from $150 to $500.

Lenders Mortgage Insurance (LMI)

If your loan to value ratio (LVR) exceeds 80% - meaning you're borrowing more than 80% of the property's value - you'll likely need to pay Lenders Mortgage Insurance. LMI protects the lender if you can't repay your loan, and it can cost anywhere from a few thousand to tens of thousands of dollars, depending on your loan amount and deposit size.

For those seeking their first home loan, understanding LMI is particularly important as it can significantly increase your upfront costs. However, it does allow you to achieve home ownership sooner with a smaller deposit.

Additional Costs to Consider

Offset Account Fees

Many variable rate home loans offer the option to add an offset account - a transaction account linked to your home loan that can help you build equity faster. While offset accounts are valuable home loan features, some lenders charge monthly fees ranging from $10 to $20 for this facility. A linked offset account can reduce the interest you pay, making it a worthwhile consideration despite any fees.

Redraw Fees

One of the attractive home loan benefits of variable rate loans is the ability to make extra repayments and then redraw those funds if needed. However, some lenders charge redraw fees, typically $10 to $50 per transaction. If you anticipate needing this flexibility, look for home loan packages that offer unlimited redraw without fees.

Discharge Fees

When you pay off your home loan or refinance to another lender, you'll typically pay a discharge fee ranging from $150 to $500. This covers the administrative costs of closing your loan account and removing the mortgage from your property title.

Home Loan Features That Can Save You Money

When exploring home loan options from banks and lenders across Australia, look for these valuable features that can offset some costs:

• Extra repayment options without penalties
• No ongoing monthly fees
• Linked offset accounts included
• Portable loan features if you move house
• Interest rate discounts for professional packages or existing customers

A split loan structure - combining variable and fixed interest rate home loan portions - can provide flexibility while offering some rate certainty. This approach lets you enjoy the home loan benefits of both loan types.

Comparing Variable Rate Home Loans

When you compare rates and fees across different lenders, consider the total cost rather than just the variable interest rate. A loan with the lowest rates might have higher fees, while a slightly higher interest rate might come with better home loan features and lower ongoing costs.

Consider these factors:

1. The actual variable rate interest rate offered
2. Available interest rate discounts for meeting certain conditions
3. All upfront and ongoing fees
4. Flexibility for extra repayments
5. Offset account availability and costs
6. Whether the loan is suitable for owner occupied home loan or investment purposes

Getting Home Loan Pre-approval

Before you start house hunting in Burpengary or the wider Moreton Bay Region, obtaining home loan pre-approval can give you clarity on your borrowing capacity and the likely costs involved. This helps you shop with confidence and understand what fees you'll need to budget for.

Pre-approval also allows you to compare different home loan products and their associated costs without committing to a particular lender. Working with a local mortgage broker who understands the Moreton Bay Region property market can help you access home loan options from banks and lenders across Australia while finding the structure that suits your financial situation.

Making Your Decision

Whether you're considering principal and interest or interest only repayments, understanding all fees and costs helps you make an informed choice. Variable rate loans offer flexibility and the potential for rate discounts when market conditions change, but knowing the complete cost structure ensures no surprises down the track.

For those looking to invest in property, improve borrowing capacity, or secure their financial stability through home ownership, taking time to understand these costs is an investment in itself.

The team at The Wealth Growers specialises in helping residents of Burpengary and the Moreton Bay Region understand their home loan options and find suitable solutions. We can help you compare current home loan rates, explain all associated fees, and guide you through the home loan application process.

Call one of our team or book an appointment at a time that works for you to discuss your variable rate home loan options and ensure you understand all the fees and costs involved.