A helping hand with home loan fees and rates
Apart from the loans themselves, there’s a whole other level of language and terms that are ready and waiting to confuse and bamboozle the under-prepared. This is your chance to get ahead with a quick crash course.
And so, our jargon minimisation strategy of help and guidance continues with this section that breaks down a whole bunch of fees and rates. Prepare yourself, because there are a quite a few of them. Consider this a quick cram to give you an overview, and when it comes to facing the real thing with your mortgage broker, you’ll be ahead of the curve.
Our advice is to start with the loans and get your head around them first. Once you’ve narrowed down your loan options, you can start to dig deeper and learn about the various fees and rates that you’ll start hearing about with your broker.
As the name suggests, this is a fee that may be applied by some lenders upfront, when you first apply for the loan.
Break cost fee
Breaking out of a fixed term loan to change to a variable rate will attract a fee to do so and this is it. This can apply when switching to a new lender and for paying out the loan early.
This is a rate that home loan lenders here in Australia must display. It helps keep them honest. You’ll most often see the comparison rate quoted in smaller text next to the larger, headline rate the lender advertises. The comparison rate is based on a single loan scenario e.g. $200k over 20 years.
Home loan lenders are of course making a profit from the money they lend, and they do this by charging daily interest on the principle amount of the loan. The interest rate charged is often known as the ‘headline rate’.
Some lenders will offer a very attractive, and low, interest rate for the first few years of your loan. This is the ‘honeymoon rate’. These are designed to attract customers, but ultimately the lender wants to recoup that money. Because of this, once the honeymoon is over, the rate the loan reverts to may be significantly higher.
Mortgages will always involve the lender having a clear understanding of the property you are building, buying or selling. So, they need to be officially valued, and this fee is for the cost of that process.
Additional security fee
This fee may be payable if you are required to provide more than one security to your loan, especially if one or more of these securities is ‘new’ and doesn’t currently secure another loan.
Some lenders will charge this fee to cover the costs of establishing your mortgage once approved. This is most often payable on the date of settlement and is sometimes waived by some banks and lenders.
Progressive drawing fee
This fee can apply when your bank or lender is required to make a number of progressive payments to fund your loan amount and is usually payable at the final drawing.
Rate lock fee
When you choose to fix your interest rates for 1+ years, this fee may be applied to your loan and will most often be a one-off fee.
Well done, you got through it. Now, this is not the world’s most exhaustive list, and you will come across other loans, fees, rates and terms. But at least now, we’ve guided you through a strong start.
And if you want more, read on to our Finance Jargon section.