The interest rate is only one part of what a home loan costs you. Fees can add up over the life of the loan, and they are worth checking before you sign.
If you are posted at Singleton and weighing up a loan, this article covers the costs that matter most. It also covers the questions to put to a lender before you commit.
What Fees Come With a Home Loan?
A home loan can carry upfront fees, ongoing fees and exit fees. Which ones apply depends on the lender and the loan product, so ask for all three types in writing.
Upfront costs can include an application fee, a valuation fee and legal or settlement fees. Ongoing costs can include a monthly or annual fee, often tied to a package that bundles an offset account and other features. Exit costs can include a discharge fee when you close the loan, and break costs if you leave a fixed rate early.
A comparison rate is designed to fold some of these fees into one figure, which makes it more useful than the headline rate alone when you compare rates. It will not capture every cost, so ask the lender for a full fee schedule as well.
Our home loans for ADF members page explains how we compare loans from lenders across Australia.
Is a Package Fee Worth Paying for an Offset Account?
A package fee is worth paying only if the savings from the offset account and any rate discount are larger than the fee. Check this with your own numbers.
As an example, consider a member with a $500,000 owner occupied home loan at an illustrative 6.75% p.a. Between postings and deployments, they keep an average of $30,000 in a linked offset account. Interest is worked out on the loan balance minus the offset balance, so they are charged interest on $470,000 instead of $500,000.
At 6.75%, interest on $30,000 is about $2,025 a year. If the package charges an illustrative $395 a year, the member is ahead by roughly $1,630 a year. That is the outcome only while the balance stays in the account. If the balance drops to $5,000, the interest saved falls to about $338, which is less than the fee, and the package no longer pays for itself.
The trade-off is that money sitting in an offset is money you cannot easily put elsewhere, and some package loans have a higher rate than a basic loan. Work out your typical balance before you pay for the feature.
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How Much Does Lenders Mortgage Insurance Add to Your Costs?
Lenders Mortgage Insurance (LMI) can be a significant extra cost for borrowers with a smaller deposit. It applies when your loan to value ratio (LVR) is high, and the premium depends on the lender, the loan amount and your deposit.
The premium protects the lender, not you. It can often be added to the loan, but then you pay interest on it for as long as it sits in the balance.
LMI waivers are usually profession-based, and few lenders publish one for uniformed ADF members. Some lenders waive it for civilian Defence staff at senior APS levels. Confirm eligibility and conditions with the lender in writing before you rely on a waiver. Our pages on LMI waivers for ADF members and no LMI loans explain what to ask.
The Home Guarantee Scheme is one LMI-free route, as it lets eligible buyers purchase with a 5% deposit without LMI. It has eligibility rules and caps, so check these before you plan around it.
Fixed Rate Break Costs: What to Check Before You Lock In
Break costs are a charge that can apply if you repay or refinance a fixed rate loan before the fixed term ends. The amount depends on how the market has moved and how long is left on your term.
This matters for ADF members because postings can change your plans. A member who fixes for several years and then gets posted interstate may want to sell, switch or restructure. Before you fix, ask the lender how break costs are calculated and whether you can make extra repayments.
A split rate, with part fixed and part variable, limits the amount exposed to break costs. The trade-off is that the fixed part will not benefit if variable rates fall. If your fixed term is ending soon, our fixed rate expiry calculator shows what happens next.
How Can You Lower the Fees You Already Pay?
Start by asking your lender what you pay now, then ask for a lower rate or a fee review. Lenders do not always offer discounts unless you ask.
Our page on getting a lower interest rate covers how to make that request. If your lender will not move, refinancing may be an option, but it has its own costs. Discharge fees, new application fees and possibly LMI can cancel out the saving. A loan health check compares what you pay now with what else is on offer, so you can see whether switching adds up.
If you are buying in the Singleton Military Area, whether near Lone Pine Barracks or elsewhere in the Hunter, our Singleton Military Area mortgage broker page shows how we work with local members.
Before you choose a loan, also check how much you can borrow with our borrowing capacity calculator. It helps you see how fees and the loan amount fit together.
Frequently Asked Questions
What fees can come with a home loan?
Home loans can carry upfront fees, ongoing fees and exit fees. These can include application, valuation, package, discharge and fixed rate break costs, depending on the lender and loan.
Is an offset account worth a package fee?
It is worth it only if the interest saved is more than the fee. In the illustrative example at 6.75% p.a., a $30,000 balance saves about $2,025 a year, but a $5,000 balance saves far less.
Do ADF members pay Lenders Mortgage Insurance?
LMI usually applies when your deposit is small. Waivers are usually profession-based, and few lenders publish one for uniformed ADF members, though some waive it for civilian Defence staff at senior APS levels. Confirm eligibility and conditions with the lender in writing.
What are fixed rate break costs?
They are charges that can apply if you repay or refinance a fixed rate loan before the term ends. Ask your lender how they are calculated before you fix.
