The Fees and Costs of Variable Rate Home Loans

When you're looking to apply for a home loan, understanding the full picture of fees and costs is just as important as comparing rates. Variable rate home loans come with their own set of charges that can significantly impact the overall cost of your loan amount. Let's break down what you need to know about the fees and costs associated with variable home loan products.

What Makes Variable Rate Loans Different?

A variable interest rate home loan means your interest rate can move up or down based on market conditions and lender decisions. This flexibility can work in your favour when rates drop, potentially giving you lower repayments. However, it's crucial to understand all the associated costs beyond just the interest rate when you're looking to achieve home ownership.

Variable home loan rates typically offer features like offset accounts and redraw facilities that fixed interest rate home loans don't always include. These home loan features can help you build equity faster and improve borrowing capacity over time.

Common Fees on Variable Rate Home Loans

When you're ready to compare rates and home loan options from banks and lenders across Australia, here are the main fees you'll encounter:

Application Fees

Many lenders charge an upfront application fee when you apply for a home loan. This fee typically ranges from $0 to $1,000 and covers the cost of processing your home loan application. Some lenders waive this fee as part of their home loan packages, so it's worth asking about during your initial discussions.

Valuation Fees

Lenders need to know the property's worth to calculate your loan to value ratio (LVR). Valuation fees usually cost between $200 and $500, though some lenders include this in their application fee or cover it themselves.

Lenders Mortgage Insurance (LMI)

If you're borrowing more than 80% of the property's value, you'll likely need to pay Lenders Mortgage Insurance (LMI). This isn't a small cost - it can range from several thousand to tens of thousands of dollars depending on your loan amount and LVR. However, LMI does allow you to enter the property market sooner with a smaller deposit.

Settlement Fees

These fees cover the administrative costs of establishing your loan and typically range from $150 to $500. They're usually charged once when your loan settles.

Monthly or Annual Account Fees

Some variable rate home loan products charge ongoing account keeping fees, which might be monthly (around $10-$15) or annual (around $200-$400). Many modern home loan packages have eliminated these fees entirely, so this is definitely something to ask about when exploring your home loan options.

Fees That Can Help You Save

Offset Account Fees

An offset account or linked offset can save you thousands in interest over the life of your owner occupied home loan or investment loan. While some lenders charge a monthly fee for this home loan feature (typically $10-$20), the interest savings usually outweigh the cost. Running a home loan rates comparison should factor in whether offset account fees are charged.

Redraw Facility Fees

Variable rate loans often allow you to make extra repayments and redraw them if needed. Some lenders charge $20-$50 per redraw, while others offer unlimited redraws at no cost. If you plan to make extra repayments beyond your principal and interest obligations, check the redraw terms.

Fees to Watch Out For

Discharge Fees

When you pay off your loan or switch lenders, you'll typically pay a discharge fee of $150-$400. This covers the administrative work of closing your account and removing the lender's interest in your property.

Break Fees

While less common with variable rate loans (they're more associated with fixed interest rate home loans), some variable products do have conditions that could trigger fees if you refinance or pay off the loan early. A split loan combining variable and fixed components would have break fees on the fixed portion.

Switching Fees

Some lenders charge fees if you want to change from a variable interest rate to a fixed interest rate, or vice versa. These fees typically range from $300 to $500.

How to Minimize Your Costs

When calculating home loan repayments and total costs, consider these strategies:

1. Negotiate: Interest rate discounts and fee waivers are often available, especially if you have a strong financial position or are bringing multiple accounts to the lender
2. Package Deals: Some home loan packages bundle your owner occupied home loan with other products like credit cards or transaction accounts, which can reduce or eliminate certain fees
3. Read the Fine Print: Understanding all fees upfront helps you make accurate comparisons between different home loan products
4. Consider the Full Picture: The lowest rates don't always mean the lowest overall cost when fees are factored in
5. Work with a Broker: A mortgage broker like CoastFin can help you access home loan options from banks and lenders across Australia and identify which products truly offer value

Special Considerations for Different Borrowers

If you're looking at your first home loan, understanding these fees is particularly important as they can add thousands to your upfront costs. Getting home loan pre-approval can help you understand exactly what you'll need to pay.

For those considering refinancing their current home loan rates, a loan health check can reveal whether switching lenders would save you money even after accounting for discharge and application fees.

Interest Only vs Principal and Interest

Variable rate loans are available as either interest only or principal and interest. Interest only loans might have slightly higher interest rates or different fee structures. While they can help if you need lower repayments in the short term, they won't help you build equity during the interest only period.

Making Your Decision

Understanding the fees and costs of variable rate home loans gives you the knowledge to make informed decisions about your financial stability and ability to invest in property. The right home loan isn't just about current home loan rates - it's about finding a product with home loan benefits that align with your circumstances and goals to secure your future.

Remember that different lenders have different fee structures, and what works for one borrower might not work for another. Whether you're looking at a portable loan that moves with you, wanting to improve your borrowing capacity, or simply searching for the right mix of features and costs, taking time to understand all expenses involved will serve you well.

Call one of our team or book an appointment at a time that works for you. We'll help you compare home loan packages across multiple lenders and find the right variable rate solution for your situation, with full transparency about all fees and costs involved.