When applying for a home loan, understanding all the fees and costs associated with variable rate loans is crucial for making informed decisions about your financial situation. Variable interest rate home loans offer flexibility but come with various charges that can significantly impact your borrowing capacity and monthly repayments.
Understanding Variable Interest Rates
Variable home loan rates fluctuate based on market conditions and lender policies. Unlike a fixed interest rate home loan, your repayments can change throughout the loan term. This means calculating home loan repayments requires ongoing attention as your home loan interest rate may increase or decrease over time.
Most lenders across Australia offer interest rate discounts for variable loans, particularly for borrowers with strong financial profiles or those willing to bundle additional products with their mortgage.
Application and Setup Fees
When you apply for a home loan, several upfront costs apply regardless of your chosen loan amount:
• Application Fee: Typically ranges from $300 to $800
• Valuation Fee: Usually between $200 to $600 depending on property type
• Legal Documentation Fee: Often $200 to $500
• Settlement Fee: Generally $150 to $400
These costs form part of your initial outlay when buying a home, separate from your deposit requirements.
Lenders Mortgage Insurance (LMI)
Lenders mortgage insurance becomes necessary when your loan to value ratio (LVR) exceeds 80%. This significant cost protects the lender if you default on repayments. LMI premiums vary based on your deposit size and loan amount, potentially costing thousands of dollars.
Ready to get started?
Book a chat with a Finance & Mortgage Broker at Simple Lending today.
Ongoing Variable Rate Loan Costs
Variable rate home loans include several ongoing fees that affect your regular expenses:
• Monthly Account Keeping Fee: Ranges from $10 to $15 per month
• Annual Package Fee: Can be $300 to $400 yearly for packaged products
• Redraw Fees: Typically $20 to $50 per transaction when accessing additional repayments
Some lenders waive account keeping fees for loans above certain thresholds or when you maintain an offset account linked to your mortgage.
Additional Property Purchase Costs
Beyond lender fees, buying a home involves substantial additional expenses:
• Stamp Duty: Varies by state, often representing 3-5% of property value
• Building and Pest Inspections: Usually $400 to $800
• Conveyancing: Typically $800 to $2,000
• Mortgage Registration: Generally $100 to $200
These costs affect your overall borrowing capacity calculations when determining how much you can afford.
Discharge and Exit Fees
When refinancing or selling your property, variable rate loans may include:
• Discharge Fee: Often $300 to $500
• Settlement Attendance Fee: Usually $150 to $300
• Government Registration Fees: Varies by state
Understanding these costs helps when considering home loan refinancing options or moving to another lender.
Getting Home Loan Pre-approval
Before committing to any variable rate loan, obtaining Home Loan pre-approval helps clarify your borrowing position. The streamlined application process involves providing banks statements, income documentation, and details about your intended property purchase.
Pre-approval gives you confidence when negotiating in the property market and helps identify suitable Home Loan options from various lenders across Australia.
Maximising Your Home Equity Benefits
Variable rate loans often provide flexibility to access home equity through redraw facilities or offset accounts. These features can reduce interest costs over your loan term, though they may include additional fees.
When considering your borrowing capacity, factor in all potential fees and charges associated with variable rate products. This comprehensive approach ensures you choose a loan structure that supports your long-term financial goals.
Call one of our team or book an appointment at a time that works for you to discuss your variable rate home loan options and understand all associated costs.
