Common Mistakes First Home Buyers Make with Variable Loan Fees

A variable home loan comes with more than just the monthly repayment.

Fees stack up quickly if you're not paying attention, and they differ across lenders in ways that can cost you thousands over the life of the loan. For South Australian public sector employees entering the property market, understanding these costs before you apply means you can budget properly and avoid surprises at settlement.

Application and Establishment Fees on a Variable Home Loan

Most lenders charge an application fee when you submit your loan request, usually between $250 and $600. Some waive it entirely, but this is less common on standard variable products. An establishment fee is charged separately by some lenders to set up the loan, and typically sits between $200 and $800. Both fees are payable regardless of whether you proceed to settlement, though some lenders refund the application fee if the loan is declined.

In our experience, public sector employees who are eligible for LMI waiver arrangements sometimes overlook these upfront costs because the focus is naturally on removing the insurance premium. Consider a buyer who secures a waiver on a loan with a 10% deposit but then finds at settlement that establishment and legal fees add another $2,500 to the funds required. That amount needs to be included in your genuine savings calculation, not treated as an afterthought.

Some lenders bundle application and establishment into a single fee. Others charge separately. Read the fee schedule in the loan offer before you commit, not after.

Ongoing Account Keeping and Service Fees

Variable home loans may include a monthly account fee, often labelled as a service fee or administration fee. This ranges from $10 to $15 per month, which adds up to $120 to $180 per year. Not all lenders charge this fee. Some waive it if you hold a transaction account with the same institution or if your loan balance sits above a certain threshold.

Account fees are easy to miss when comparing products because they appear small relative to the loan amount. Over a 30-year loan term, a $12 monthly fee compounds to more than $4,300 in total payments. That figure increases if the fee is indexed annually.

Some lenders offer packaged loan products that bundle the home loan with transaction accounts, credit cards, and fee waivers in exchange for an annual package fee, typically $300 to $400. Whether this delivers value depends on how many of the included features you use. If you need only the home loan and an offset account, the package fee may not be justified.

Offset and Redraw Fees

An offset account linked to your variable home loan reduces the amount of interest you pay by offsetting your savings balance against the outstanding loan balance. Most lenders offer offset accounts at no additional cost on variable products, but some charge a monthly fee of $10 to $20. Redraw facilities, which let you access extra repayments you've made above the minimum, may also incur a fee each time you withdraw. This is typically $20 to $50 per redraw transaction, though many lenders now offer unlimited free redraws on variable loans.

If you plan to use redraw regularly to manage cash flow, confirm whether the lender charges per transaction or offers unlimited access. Offset accounts generally provide more flexible access without transaction fees, which makes them more practical for buyers who want ongoing control over surplus funds.

Some lenders restrict offset or redraw features to certain variable loan products or require you to hold a minimum loan balance to access them. Check the product disclosure statement to confirm availability before you apply.

Valuation and Settlement Fees

The lender will arrange a valuation of the property you're purchasing to confirm it supports the loan amount. The valuation fee ranges from $200 to $400 depending on the property type and location. This fee is usually payable upfront and is non-refundable if the loan does not proceed. Some lenders cover the valuation cost as part of a promotional offer, but this is uncommon on standard variable products.

Settlement fees, also called document preparation fees, cover the cost of preparing loan documents and registering the mortgage. These typically sit between $200 and $500. Some lenders include settlement fees within the establishment fee, while others charge them separately. You'll also pay legal fees to your conveyancer or solicitor, which are separate from the lender's charges and usually range from $1,200 to $2,000 depending on the complexity of the transaction.

If you're buying in South Australia and are eligible for the stamp duty concession on established homes, the absence of duty on properties up to $700,000 reduces the upfront cost significantly. Settlement fees and legal costs still apply and need to be funded from your deposit or genuine savings.

Discharge and Exit Fees

A discharge fee applies when you pay out the loan in full, either because you've sold the property, refinanced to another lender, or paid off the balance early. This fee covers the administrative cost of removing the mortgage from the property title and typically ranges from $300 to $500. Most lenders charge a discharge fee regardless of how long you've held the loan.

Some older loan products include an exit fee, which is a separate charge applied if you close the loan within a certain period, usually the first few years. Exit fees were banned on new home loans from 1 July 2011, so they do not apply to any loan originated after that date. If you're refinancing an old loan that was taken out before 2011, check whether an exit fee still applies under the original contract terms.

Discharge fees are often forgotten when budgeting for a refinance because the focus is on the new loan's features and rate. If you're moving to a new lender within the first few years, factor in both the discharge fee on the old loan and the application and establishment fees on the new one.

Lenders Mortgage Insurance and When It Applies

Lenders Mortgage Insurance is not a loan fee in the traditional sense, but it's a significant upfront cost for most first home buyers who borrow more than 80% of the property value. LMI protects the lender if you default on the loan. The premium is calculated based on the loan amount, the deposit size, and the perceived risk of the loan. On a loan of $450,000 with a 10% deposit, LMI can exceed $10,000.

South Australian public sector employees may be eligible for an LMI waiver through certain lenders, which removes this cost entirely. Eligibility usually requires stable employment in a qualifying occupation and a loan-to-value ratio of up to 90%. Some lenders extend the waiver to 95% in limited circumstances. If you're using the Australian Government 5% Deposit Scheme, no LMI is payable because Housing Australia guarantees the shortfall instead.

LMI is usually capitalised into the loan, meaning you don't pay it upfront but instead add it to the total amount borrowed and pay interest on it over the life of the loan. This increases both your loan balance and your ongoing repayments. If you have the option to pay the premium upfront from savings, you'll reduce the total interest cost, but this depends on whether you have surplus cash after covering deposit and settlement costs.

Call one of our team or book an appointment at a time that works for you. We'll walk through the fee structure across lenders that offer LMI waivers and low deposit options for South Australian public sector employees, so you know exactly what you're paying before you apply.

Frequently Asked Questions