Beginner's guide to Variable Rate Loan Fees and Costs

Variable rate loans typically involve fewer upfront fees than fixed loans, but the costs you pay depend on which features you need and how your lender structures their charges.

The decision between variable and fixed often comes down to flexibility, but many first home buyers don't realise that the flexibility of a variable rate loan comes with its own set of fees. Some are unavoidable, others are tied to specific features, and a few depend on how you use the loan. Knowing which costs apply to your situation means you can budget properly from the start and avoid paying for features you won't use.

Upfront Costs When You Take Out a Variable Rate Loan

Most lenders charge an application fee and a settlement fee when you take out a variable rate loan. Application fees typically range from $200 to $600, though some lenders waive this cost entirely during promotional periods. Settlement fees sit between $150 and $400 and cover the lender's administrative costs to finalise your loan. These fees are usually added to your loan balance rather than paid separately at settlement, though you can choose to pay them upfront if you prefer.

Lenders Mortgage Insurance is the largest upfront cost for buyers with less than a 20% deposit. LMI protects the lender if you default on the loan and is calculated based on your deposit size and loan amount. A buyer purchasing at the median using the Australian Government 5% Deposit Scheme avoids LMI entirely because Housing Australia guarantees the shortfall between the 5% deposit and the 20% threshold. Outside of that scheme, LMI on a 10% deposit can add several thousand dollars to your loan balance, and it applies regardless of whether you choose a variable or fixed rate.

Some lenders also charge a valuation fee, usually between $200 and $400, to assess the property you're buying. This fee is often rolled into the application fee or waived depending on the lender's current offers. It's worth asking your broker which lenders are waiving valuation fees before you lodge your home loan application.

Ongoing Account Fees and How They Add Up

Variable rate loans may include an ongoing monthly account fee, typically between $10 and $15 per month. That works out to $120 to $180 each year. Some lenders don't charge this fee at all, while others waive it if you hold your transaction account with the same bank or meet a minimum deposit threshold each month.

If your variable loan includes an offset account, the lender may charge a separate monthly fee for that feature, usually between $10 and $20 per month. Not all lenders charge for offset accounts, and in many cases the fee is bundled into a packaged loan product that includes other features such as fee waivers on credit cards or transaction accounts. Whether an offset account is worth the fee depends on how much you can keep in it. If you're holding a balance that offsets a meaningful portion of your loan, the interest saved will exceed the monthly fee.

Consider a buyer who takes out a variable loan with a $15 monthly account fee and a $15 offset account fee. Over the life of a 30-year loan, those fees alone add up to $10,800. If the offset account consistently holds enough to save more than that in interest, the feature pays for itself. If not, a no-frills variable loan without an offset might suit them just as well.

Redraw Fees and How They Differ From Offset Accounts

Redraw allows you to access extra repayments you've made on your variable loan. Some lenders offer unlimited free redraws, while others charge between $20 and $50 per transaction. A few lenders also set a minimum redraw amount, typically $500 or $1,000, which can be frustrating if you need to access a smaller sum.

Redraw differs from an offset account in both cost and accessibility. Money in an offset account remains yours and can be withdrawn at any time without restriction. Money in redraw is technically part of your loan repayment and must be requested from the lender, who may take a few days to process it. If your lender charges per redraw and you access funds regularly, the fees can add up quickly. In those cases, paying the monthly fee for an offset account might work out cheaper.

Not all variable loans offer redraw. Some no-frills products strip out this feature entirely to keep costs down. If you're disciplined about making extra repayments but don't expect to need that money back, a loan without redraw might offer a lower rate. If you want the option to pull funds out when needed, redraw or offset becomes essential, and the associated fees should factor into your comparison.

Switching Between Variable and Fixed Rates

Many lenders allow you to switch part or all of your variable loan to a fixed rate without refinancing. This is often called a rate lock or internal rate switch. Some lenders charge a fee for this, typically between $300 and $500, while others offer it at no cost. Once you've locked in a fixed rate, switching back to variable before the fixed term ends will usually trigger break costs, which can run into the thousands depending on rate movements and the remaining term.

Break costs are calculated based on the difference between the fixed rate you locked in and the current wholesale rates the lender uses. If rates have dropped since you fixed, the lender has lost income, and you'll be charged to exit early. If rates have risen, the break cost may be nil. This cost applies whether you're switching back to variable or refinancing to another lender, and it's one of the reasons many buyers choose to split their loan between variable and fixed rather than locking in the full amount.

Discharge Fees and What You Pay When You Leave

When you sell the property or refinance to another lender, your current lender will charge a discharge fee to release the mortgage over your property. This fee typically sits between $300 and $500 depending on the lender. It's a standard administrative cost and applies to both variable and fixed loans.

Some lenders also charge a settlement fee at the time of discharge, though this is less common with variable rate loans than with fixed. If you're planning to refinance in the near future, it's worth checking your loan contract for discharge costs so you can factor them into your refinancing calculations. A lower rate with another lender might not be worthwhile if the discharge fee and new application fees eat into your savings in the first year.

Package Fees and Whether They Deliver Value

Many lenders offer packaged home loans that bundle a variable rate loan with other banking products such as credit cards, transaction accounts and offset accounts. These packages usually come with an annual fee, typically between $300 and $400, in exchange for waived account fees on linked products and sometimes a small discount on your loan rate.

Whether a package delivers value depends on how many of the included features you actually use. If you're paying $395 per year but saving $180 in monthly account fees, $180 in offset account fees and $50 in credit card fees, the package works in your favour. If you're only using the offset account and nothing else, you're paying an extra $215 each year for features you don't need. In our experience, first home buyers who keep their banking with one institution and use multiple products often come out ahead with a package. Buyers who prefer separate accounts or don't need a credit card are usually paying for features that don't add value.

Knowing What You're Paying For and Why It Matters

Every fee attached to your variable rate loan should serve a purpose. If you're paying for redraw but never access it, or paying for an offset account that sits empty, those are costs you can cut by switching to a more appropriate product. Your circumstances will change over time, and the loan structure that suits you now might not suit you in two years. Regular reviews help you stay on top of what you're paying and whether it still makes sense.

Call one of our team or book an appointment at a time that works for you. We'll walk through the fee structures across different lenders and match you with a variable rate loan that fits your budget and how you plan to use it.