Most variable rate home loans come with fees that go well beyond the interest rate itself. Some you'll pay upfront, others each year, and a few only when you make changes to the loan. Knowing which fees apply to your situation means you can budget accurately and compare loan products on their true cost, not just the advertised rate.
Application Fees and Upfront Costs on Variable Rate Home Loans
Application fees typically range from nothing to around $600, depending on the lender and loan product. Some lenders waive this fee entirely, while others charge it to cover the cost of processing your application and conducting credit checks. You'll usually pay this fee when you submit your application, whether or not the loan is approved.
Consider a buyer applying for an owner occupied home loan with a variable interest rate. One lender offers a rate that's 0.10% lower than another but charges a $600 application fee. The second lender has no application fee but a slightly higher rate. Over the first year, the rate difference might cost an extra $200 on a typical loan amount, which means the no-fee option actually costs less upfront and in the short term. The calculation shifts if you plan to hold the loan for many years, but upfront fees matter when you're managing settlement costs.
Some lenders also charge a valuation fee, which covers the cost of having a property professionally valued before approving the loan. This can range from $200 to $400 and is separate from the application fee. Not all lenders pass this cost on to you, so it's worth checking whether it's included in the package.
Annual Fees and Package Charges
Many variable rate home loans include an annual fee, often called a package fee or service fee. These fees usually sit between $200 and $400 per year and are charged regardless of your loan balance or how actively you use the loan. The fee is typically debited from your loan account or offset account on the anniversary of settlement.
Package fees often come with benefits such as fee waivers on linked offset accounts, discounted interest rates, or reduced fees on other products like credit cards. Whether the package fee represents value depends on how much you save through those benefits. If you're paying $395 annually for a package that gives you a 0.20% rate discount, you'll come out ahead on most loan amounts. If the only benefit is a waived offset account fee that would have cost $120 anyway, the package fee might not be worthwhile.
When comparing variable home loan rates, factor in the annual fee as part of the ongoing cost. A loan with a slightly higher interest rate and no annual fee can work out cheaper than a lower rate with a $395 package fee, particularly if your loan balance is relatively small.
Offset Account Fees and How They Add Up
An offset account linked to your variable rate home loan can reduce the interest you pay by offsetting your loan balance with the funds in the account. Some lenders include this feature at no charge, while others charge a monthly fee of around $10 to $20. Over a year, that's an additional $120 to $240 on top of any package fee you're already paying.
In our experience, clients often assume an offset account is automatically included because it's a standard feature advertised alongside the loan. The monthly fee isn't always clear at the application stage, and it can become a surprise cost when the first statement arrives. If you're not keeping a substantial balance in the offset account, the fee can outweigh the interest savings.
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Discharge Fees and Early Exit Costs
Discharge fees apply when you pay out the loan in full, either because you've sold the property or you're refinancing to another lender. Most lenders charge between $300 and $500 for discharge, which covers the administrative cost of releasing the mortgage and updating the land title. This fee is usually deducted from the final payout amount at settlement.
Unlike fixed interest rate home loans, variable rate loans typically don't carry break costs if you exit early. You can refinance or pay out the loan at any time without incurring penalties related to interest rate movements. The discharge fee is a standard cost, not a penalty, and applies regardless of how long you've held the loan.
If you're considering refinancing in the near future, factor the discharge fee into your calculations. It's part of the cost of switching lenders and should be weighed against the savings you'll gain from a lower rate or different loan structure.
Monthly Service Fees on Linked Products
Some variable rate home loan packages bundle in features like a linked transaction account or credit card. These products can carry their own monthly fees, which add to the overall cost of maintaining the loan. A transaction account might charge $6 per month if certain conditions aren't met, such as depositing a minimum amount each month or making a set number of transactions.
These fees are separate from the loan itself but are tied to the package you've chosen. If you're not using the linked products actively, you may be paying for features you don't need. Review the package terms to see whether you can remove or downgrade these products without losing the core home loan benefits.
Settlement and Legal Fees
Settlement fees cover the lender's cost of preparing loan documents and attending settlement. These usually range from $200 to $600 and are charged at the time the loan settles. You'll also have legal fees for conveyancing and title searches, which are separate from the lender's charges but still part of the upfront cost of securing a home loan.
Lenders sometimes bundle settlement fees into the loan amount, so you don't pay them out of pocket at settlement. This increases your loan balance slightly and means you'll pay interest on the fee over the life of the loan. If you're managing cash flow carefully, this can help, but it does add to the long-term cost.
Ongoing Transaction Fees and Redraw Costs
Some variable rate loans charge a fee each time you redraw funds from the loan. Redraw allows you to access extra repayments you've made above the minimum, and while many lenders offer unlimited free redraws, others charge between $10 and $50 per transaction. If you plan to make extra repayments and access those funds periodically, check whether redraw fees apply.
As an example, a borrower makes additional repayments throughout the year to build equity and reduce interest. When an unexpected cost arises, they redraw $5,000 to cover it. If the lender charges $20 per redraw, and the borrower does this twice a year, that's an extra $40 annually. Over the life of the loan, those small fees add up, particularly if you redraw frequently.
Transaction fees can also apply to direct debit dishonours, paper statement requests, and switching from variable to a split loan structure. These aren't charges you'll encounter every month, but they're worth understanding so you're not caught off guard.
Lenders Mortgage Insurance and How It's Charged
If your deposit is less than 20% of the property value, you'll usually need to pay Lenders Mortgage Insurance. This protects the lender if you default on the loan, and the cost can range from a few thousand dollars to tens of thousands, depending on your loan amount and deposit size.
LMI is typically added to your loan balance rather than paid upfront, which means you'll pay interest on it over time. It's a one-off cost, not an ongoing fee, but it has a significant impact on the total amount you'll repay. Some lenders offer discounted LMI rates or waive it entirely under certain conditions, such as for professionals in specific fields.
When you apply for a home loan with a smaller deposit, ask your broker to compare LMI costs across different lenders. The premium can vary considerably, and choosing a lender with lower LMI can save you thousands without affecting your interest rate or loan features.
Rate Discount Periods and Honeymoon Rates
Some variable home loan products advertise a discounted interest rate for the first year or two, often called a honeymoon rate. Once that period ends, the rate reverts to the lender's standard variable rate, which can be significantly higher. The revert rate is the figure you should focus on when comparing loan products, not just the introductory offer.
If you take out a variable rate loan with a honeymoon rate, set a reminder to review the loan a few months before the discount period ends. At that point, you can either negotiate a rate discount with your current lender or refinance to a more suitable product. Clients often forget about the revert date and end up paying a higher rate than necessary.
Comparing Total Fees Across Loan Products
When you compare rates across different lenders, list out all the fees for each product alongside the interest rate. Add up the application fee, annual package fee, offset account fee, and any other ongoing charges. Then calculate what those fees would cost over the first few years of the loan and factor that into your decision.
A loan with a variable interest rate that's 0.15% lower than another might still cost more overall if it comes with a $395 annual fee and a $15 monthly offset account fee. The reverse is also true: a slightly higher rate with no ongoing fees can be more economical, especially if your loan balance is modest or you don't need all the features included in a premium package.
Your broker can run these comparisons for you and present the total cost of each option. That makes it easier to choose a loan based on value rather than just the headline rate.
If you'd like to review the fees on your current loan or compare variable rate home loan options across different lenders, call one of our team or book an appointment at a time that works for you.
Frequently Asked Questions
Do all variable rate home loans charge an application fee?
No, application fees vary by lender and loan product. Some lenders waive the application fee entirely, while others charge between $300 and $600 to process your application and conduct credit checks.
What is a package fee on a variable rate home loan?
A package fee is an annual charge, typically between $200 and $400, that often includes benefits like fee waivers on offset accounts or discounted interest rates. Whether it offers value depends on the benefits you actually use.
Are there fees for using an offset account?
Some lenders include offset accounts at no charge, while others charge a monthly fee of around $10 to $20. Over a year, this can add up to $120 to $240 in additional costs.
Do variable rate loans have break costs if I refinance?
No, variable rate loans typically don't have break costs. You can refinance or pay out the loan at any time, though you'll still pay a discharge fee of around $300 to $500 when exiting the loan.
How do I compare the total cost of variable rate home loans?
Add up all fees including application, annual package, offset account, and any transaction fees, then factor these into the interest rate. A lower rate with high ongoing fees may cost more overall than a slightly higher rate with minimal fees.
