How to Avoid Unnecessary Home Loan Fees
October 4, 2021
Owning a house is good; however, the process can be expensive and financially draining. Not only do you have to consider the cost of the house but also associated fees. If you are looking to buy a house, you may need to consult with a mortgage broker in Perth on the fees you’re most likely to face and how to cut down on those fees. This article considers the common fees associated with the home loan process and how you can avoid unnecessary fees.
The Different Home Loan Fees and Charges
When planning on buying a home, some of the common fees you’ll face can be broadly divided into the following categories.
Fees Paid at Settlement
These are the fees that are expected to be paid by the homeowner at settlement. They include:
- Home Loan Application or Loan Processing Fee – This payment is one-off and is charged by the bank when you secure a home loan. The details of this fee vary and depend on the property type, loan type, and the bank from which the loan originated. On average, this can cost anywhere between $0 and $800.
- Valuation Fee – Once you have secured a pre-approval and found a property, the lender will send their valuer to perform a valuation of the property. This fee can be as high as $300 and can be ordered upfront from some lenders. This fee may be waived by some lenders or not.
- Settlement and Establishment Fee – This is the cost payable to the bank by the borrower to establish the home loan. The amount payable depends on different factors, but the fees range from $0 to $600.
- Rate Lock Fee for Fixed Loans – This is the amount charged by the lender to lock in a favorable mortgage rate for the borrower ahead of the settlement date. Paying this fee allows the borrower to lock in a desirable interest rate for as long as 90 days. This fee varies as some lenders charge a percentage of the loan amount while others charge a flat fee of about $750.
Fees That Apply During the Loan Term
Borrowers may need to pay certain fees after securing their home loan. The applicable fees depending on the terms of the loan and may include;
- Ongoing Fees – This may be in weekly, bi-weekly, monthly, or annual fees charged by the lender. The fees could be as low as $15 a month or up to $395 annually. The amount, although it appears small compounds over the years to become a huge sum.
- Late Repayment Fees – Some lenders charge a late repayment fee when borrowers miss a due repayment date. The amount charged will depend on the bank and the loan repayment terms. Usually, the additional charge falls between the $20 and $50 mark.
- Fees for Home Loan Features
- Home loans have become more flexible than they used to be in the past. This means that you can choose some features and reject some others. However, some of the fees associated with your decisions include;
- Extra Repayments – This is usually free and allows you to make multiple or extra repayments to offset your home loan faster. Paying more money reduces your overall debt and increases your home equity.
- Redraw Fees – This feature allows you to take back additional repayments made on your home loan. This means that you can cash out on extra amounts on your home loan whenever you are in a financial fix. A redraw may cost as much as $50 per transaction.
- Offset Account Fees – This is an account associated with your home loan and allows you to make deposits or withdrawals at will. It helps save money on interest rates but comes at an average of $15 monthly.
- Loan Portability – This allows the transfer of existing loans and their details into other properties. Most lenders charge heavily for this feature and may cost up to $200.
Lenders also charge fees on early repayments, loan switches, or mortgage refinance, depending on the contract terms.
How to Reduce Home Loan Fees and Charges
To reduce the burden of charges on your shoulders, focus on the tips below;
- Research a lender that offers special promotions on home loans or a lender that offers purchase or refinance rebates.
- Take advantage of free upfront property valuation as offered by most lenders.
- Ask about and research each of the fees associated with your mortgage contract before signing up.
- Avoid paying for packaged loans, especially if you have no use for the additional loan features.
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