Can you get a home loan with no fees?

There are lenders that offer home loans with no upfront or ongoing fees. 

However, to be eligible for a no fee home loan you may have to meet certain requirements and could still incur fees if you break the terms of the mortgage contract.

Some lenders offer cashback rewards to new customers, which could go a long way towards making up for any switching costs, such as upfront fees. Lenders may also choose to discount or waive some fees to help retain borrowers and attract new customers.

Alternatively, you can find home loans that impose upfront fees but no ongoing fees. You may also be able to avoid paying some costs associated with your home loan if you qualify for certain government initiatives, concessions and exemptions.

In certain cases, such as refinancing or paying the balance of your loan, you may incur discharge fees or break fees.

Upfront fees are charged by lenders when securing a home loan. These fees are usually paid during the settlement process, and can vary depending on factors such as the loan amount, property value, and location.

Let’s explore the upfront fees you may encounter, helping you navigate the home loan journey more confidently.

Application fee: To cover the administrative costs of processing your loan application, lenders may charge an application fee. This fee may also be referred to as an establishment fee or start-up, up-front or set-up fee. This one-off payment typically ranges from a few hundred dollars to several thousand dollars. While some lenders might waive this fee as part of promotions, it's important to factor it into your budget.

Valuation fee: Before approving a home loan, lenders often require a valuation of the property to determine its worth. The cost of this valuation is usually borne by the borrower and can vary between a few hundred to around a thousand dollars. The valuation helps the lender assess the property's value and ensure it aligns with the loan amount.

Mortgage registration fee: This fee is imposed by state and territory governments to officially register the security for a home loan. This fee ensures that the physical property is legally recognised as collateral for the loan and enables prospective buyers to investigate any existing claims on the property. Both the buyer and the seller are required to pay this fee. The buyer pays during the establishment of the loan, while the seller pays when the loan is discharged.

Other upfront costs to consider when taking out a home loan

Beyond the fees charged by lenders, there are additional expenses that may arise. These upfront costs should be factored into your budget when planning to purchase a home.

Deposit: A deposit refers to the initial amount of money that you contribute towards the purchase of a property. It is the portion of the property's total price that you pay upfront, while the remaining amount is borrowed through a home loan. You can sometimes find loans with low deposit requirements or concessions and exemptions. First homebuyers can also explore different tax benefits that may be available. Check out our tips for affording a home loan deposit.

Lender's Mortgage Insurance (LMI): If your deposit is less than 20% of the property's value, lenders may require you to pay Lender's Mortgage Insurance (LMI). This insurance protects the lender in case you default on your loan. The cost of LMI depends on factors such as the loan amount, loan-to-value ratio, and other lender requirements. LMI does not provide any protection to the borrower. You can use RateCity’s LMI calculator to estimate costs.

Legal and settlement fees: Engaging a solicitor or conveyancer to handle the legal aspects of your property purchase is common practice. These professionals ensure a smooth and legally compliant transfer of ownership. However, their services come with fees that can vary based on the complexity of the transaction and the professional you engage. It's advisable to research and compare fees to make an informed decision.

Stamp duty:  A tax imposed by state or territory governments on property transactions. The cost of stamp duty varies depending on factors such as the property value, location, and whether you are a first home buyer or not. Most lenders won’t allow you to include the cost of stamp duty as part of your home loan, However, stamp duty may be discounted or even waived for certain borrowers, especially first home buyers. Check with your state or territory’s government to learn more about what concessions and exemptions are available.

Some home loan providers charge ongoing fees. A home loan with no ongoing fees is a mortgage with no recurring charges, such as monthly or annual account keeping fees.

There are a variety of different fees a lender can charge that could be considered ongoing costs. These include:

• Monthly service fees: These are associated with loan administration and servicing.
• Annual fees: Some loans, particularly those offered as part of a package deal, may incur annual fees associated with a lower rate of interest or other promotional offers.
• Late payment charges: If you don’t pay your monthly repayment on time, you may be charged a late payment fee. In some cases, a lender might provide some leeway and waive these fees.
• Redraw fees: Lenders may offer an offset or redraw feature that allows you to withdraw additional payments you've made during the loan duration. However, you may have to pay a fee for each withdrawal.

Compare your options to include fees as a percentage of your repayment charges

Checking a loan’s comparison rate can provide an indication of a home loan’s actual total costs. The comparison rate combines interest charged, fees incurred and other standard charges into a single percentage.

Looking at the comparison rates of two or more home loans can help you estimate, at a glance, which mortgages may end up costing you more or less money overall.

For example, you might save hundreds or thousands of dollars by choosing a home loan that doesn’t charge one-off, upfront fees. However, these initial savings may be negated down the track if you’re paying ongoing account fees for the next 25-30 years.

Checking with the provider and reading up on the mortgage’s product disclosure statement (PDS) can help you to ascertain exactly what fees and charges apply to the loan you’re researching and how much they could cost you.

When you decide to pay off your home loan or refinance before the loan term ends, lenders may charge you fees. These fees are designed to compensate the lender for the potential loss of business. Let's take a closer look at two common fees associated with ending a home loan early: discharge fees and break fees.

Discharge fee: Charged when you complete the repayment of your loan balance or refinance your loan with another lender. Lenders impose this fee to cover their legal and administrative costs involved in finalising your home loan.

Discharge fee amounts vary among lenders and may set you back a few hundred or a few thousand dollars. The exact cost depends on the specific lender you are dealing with. 

Fixed-rate break fees: If you have a fixed-rate home loan, breaking your loan terms can result in being charged a fee. This fee compensates the lender for the financial impact caused by your early repayment.

The calculation of break fees usually considers two factors: the remaining duration of the fixed-rate period and the interest amount you would have paid to the lender during that time. If interest rates have significantly decreased since you obtained your loan, the break fee may be higher.

In July 2011, the federal government abolished home loan exit fees on new loans so that borrowers would no longer be discouraged from switching home loans to a more competitive lender.

Researching the fees associated with home loans in Australia is vital when planning to purchase a property. These fees and costs can impact your budget tremendously. If considered in advance, you’ll be better prepared to meet serviceability requirements and make repayments on time.

Don’t be afraid to ask your lender for discounts. Prepare your case, highlight your value as a customer, be ready to negotiate and mention your refinancing options. You may also discover ways to save on some of these costs by evaluating your eligibility for state and federal government initiatives, concessions or exemptions. 

Being aware of the potential charges and costs associated with taking out a home loan can Keep in mind that while a home loan might advertise "no fees", there could still be charges associated with the loan. It's important to carefully review the terms and conditions, as well as any potential hidden costs, before committing to a particular loan.

Additionally, interest rates, loan features, and repayment terms are crucial factors to consider when choosing a home loan. While fees are important, it's also sensible to assess the overall cost and suitability of the loan based on your individual circumstances.

Remember to compare lenders, negotiate where possible, and consider seeking the advice of a mortgage brokers or financial advisor to help make informed decisions and secure a home loan that suits your needs.