The costs of taking out a mortgage loan can vary depending upon the type of loan and lender. Some lenders prefer to charge an annual fee which may include all of the services expected to be provided during the term of the loan; e.g. application, account fees, variation fees. Others adopt a “user pays” approach where you only pay fees as you use the service.
Other fees which might be payable include:
- Construction administration fees
- Fixed rate guarantee fees
- Lenders Mortgage Insurance (LMI) premium – generally payable for LVR's > 80%
Other fees and costs cannot be avoided. These include land titles registration fees, fees payable to your Solicitor or Conveyancer and any loan discharge fees (which must reflect the economic cost to the lender, and not include a penalty component).
Exploring Mortgage Types
There are 3 main types of mortgage loan available:
- Basic variable loan – a variable rate loan with a reduced set of features, but usually includes the capacity for additional repayments, redraw facility and fortnightly or monthly repayment cycle. Sometimes cannot be combined with other loan types.
- Standard variable loan – a full featured variable rate loan facility. Includes advanced features such as offset savings account(s), interest rate discounts based on loan amount and LVR, and capacity to combine with other loan types.
- Fixed rate loan – a loan with a very reduced set of features. The interest rate is fixed for a set period (usually between 1 and 5 years). Thereafter the loan reverts automatically to the prevailing standard variable rate or a pre-negotiated discount variable rate.
There are advantages/disadvantages with each loan type.
Basic Loans
Basic loans are usually most suited to smaller loan sizes, or for borrowers not requiring options in how they will manage the loan. Their main advantage is their low fee structure. The borrower can repay the loan at any time without penalty fees being incurred.
Standard Variable Loans
Standard variable loans provide borrowers (and lenders) with the highest degree of flexibility. The interest rate can be varied at any time by the lender. The borrower retains the flexibility to manage the loan/offset balances however they wish and can repay the loan at any time without penalty fees being incurred. These loans come with an annual fee (usually between $180 and $400 pa).
Fixed Rate Loans
Fixed rate loans provide certainty for the borrower in return for much reduced flexibility. There are strict limits on additional repayments to the loan and features such as offset accounts or redraw facilities are generally not available. These loans are subject to early repayment fees (also known as break fees) if the borrower wishes to repay the loan prior to the end of the fixed rate period.
Other loan types such as construction or bridging loans are generally a subset of the loan types listed above. They have additional qualification criteria and will differ in how the loan is delivered or its maximum term.
Choosing the Right Mortgage Broker for Your Needs
There are a range of mortgage broking services available including individual operators with 1 or 2 support staff, medium size firms comprising several brokers and a range of support staff dealing with specific aspects of the transaction, and large franchise models with regimented systems and heavier reliance on brand to acquire new customers.
You need to find a broker that meets your individual needs. A good place to start is to ask a friend who has recently used a mortgage broking service. However, ask them to describe their experience and the working relationship they developed. Is that the type of service you are looking for? Will you be dealing directly with the broker, or will you be ultimately corresponding with their support staff? Is there good rapport and do you feel that the broker empowers you to make a good decision?
You can also consider critical recommendations from property developers, real estate agents or other parties who may have a conflict of interest that the transaction proceeds.
Finally check the broker’s reviews on sites such as Word of Mouth or Google. Specialist review sites may be more reliable because they provide reviewers with a degree of anonymity to provide detailed information about what can be a very private transaction.
Written by:
Bruce Carr (Mortgage Broker)
Bruce Carr has been a Mortgage Consultant since 2003. Possessing a thorough understanding of the concerns and issues faced by his clients, he believes in meticulous quality control, ethical risk management and attention to detail.
Disclaimer: The provided content is intended solely for informational purposes. Prior to undertaking any financial transactions, it is strongly recommended to seek advice from a qualified mortgage professional or financial advisor to address your specific circumstances.
