Be informed about first home fees
Buying your first home is a great achievement. Understanding the extra fees and costs of buying your home, that can surprise some buyers, helps to make the experience as straightforward and enjoyable as possible. Be aware not all home loans are as transparent as they first appear and hidden or unexpected fees can often apply. Here’s what to watch out for:
Establishment or ‘start up’ costs are the first extra costs you could incur. These are one-off fees paid at the beginning of your loan, and although not all lenders charge these, a smaller one-off payment is preferable to paying higher ongoing fees.
Lender’s Mortgage Insurance or Low Equity Margins
If you’re looking to borrow more than 80% of the property’s total value, you may need to pay Lender’s Mortgage Insurance or with some banks, they do not charge a Lenders Mortgage Insurance fee but will add a low equity margin (additional interest rate). This type of insurance is taken out by lenders to protect against defaulted payments. The amount you pay will depend on the loan amount and the Loan-to-Value Ratio (LVR).
If you’re looking to refinance your home and are on a fixed rate mortgage, you could be subject to break fees. Although government regulations banned lenders from charging exit fees for variable rate home loans in 2011, if you’re considering a fixed rate loan then it’s important to look at the financial impact of break fees. The sum of these costs will depend on different factors, including the original loan amount, outstanding balance, time remaining on the fixed term and how much interest rates have come down since you took out the loan.
Not all mortgages are subject to ongoing monthly or annual fees. These average out at approximately $90 each year but can be as high as $800 annually, so it’s worth making sure you’re aware of these costs before you commit.
Home loans are constantly changing, and it’s important to remember advertised rates aren’t always what they seem - it’s often cheaper rates that carry the largest additional fees. When it comes to buying your property, a mortgage adviser can help you decode the small print, understand tricky clauses and make sure you’re armed with the right information before you sign.