Most variable rate home loans look similar until you add up the fees.
The interest rate catches your attention first, but the ongoing costs and upfront charges determine what you'll actually pay over the life of your loan. A loan with a slightly higher rate and lower fees can work out cheaper than a headline rate with multiple charges stacked on top.
Application and Upfront Fees on Variable Rate Loans
Most lenders charge an application or establishment fee when you take out a variable rate home loan, typically between $300 and $600. This covers the cost of processing your application, conducting valuations, and preparing loan documents. Some lenders waive this fee entirely, particularly if you're borrowing a larger amount or applying through a broker.
Valuation fees sit separately and range from $150 to $300 for a standard residential property. The lender arranges the valuation to confirm the property's worth matches your purchase price. You'll pay this even if your loan doesn't settle, so it's one cost you can't recover if your application falls through.
Consider a buyer applying for a $500,000 owner occupied home loan on a variable rate. If the lender charges a $600 application fee and a $250 valuation fee, you're starting $850 behind before you've borrowed a dollar. Another lender might offer no application fee but charge a higher ongoing monthly fee instead. Over two years, that monthly fee could cost more than the upfront saving.
Ongoing Account Fees and Package Options
Variable rate loans typically charge a monthly account fee, usually between $10 and $15 per month. That adds up to $120 to $180 each year for the life of your loan. Some lenders bundle their variable rate loans into packages that waive the monthly fee in exchange for an annual package fee, often around $350 to $400.
These packages usually include additional features like an offset account, fee-free credit cards, and discounted insurance products. The package makes sense if you'll use those features, but if you only need a loan with an offset, paying a monthly account fee on a standalone product often works out cheaper.
In our experience, borrowers focus heavily on the interest rate and overlook the monthly fee. A loan at 6.10% with no monthly fee costs less over five years than a loan at 6.05% with a $15 monthly charge, assuming the same loan amount and repayment schedule.
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Settlement and Discharge Fees
Settlement fees cover the lender's cost of registering your mortgage and finalising the loan, usually between $100 and $300. You'll pay this at settlement, so it's part of your upfront costs alongside stamp duty and conveyancing.
Discharge fees apply when you pay off your loan or refinance to another lender. Most lenders charge between $300 and $500 to remove the mortgage from your property title. This fee catches many people off guard when they refinance because it's deducted from your final payout amount. If you're comparing your current loan to a new one, include the discharge fee in your calculation to see whether refinancing actually saves you money.
A discharge fee doesn't apply if you're making extra repayments or paying off your loan early while staying with the same lender. It only applies when the loan is fully closed and the mortgage is removed.
Offset Account and Redraw Fees
Most variable rate loans include an offset account as standard, but some lenders charge a monthly fee for it, usually around $10 to $15. An offset account reduces the interest you pay by offsetting your savings balance against your loan balance, so a fee for this feature eats into the benefit.
Redraw facilities let you access extra repayments you've made on your loan. Some lenders charge a fee each time you redraw, typically $10 to $50 per transaction. Others limit you to a certain number of fee-free redraws per year. If you plan to make extra repayments and access them later, check whether your loan charges for redraws or whether an offset account is included without extra cost.
As an example, a borrower with $20,000 in an offset account on a $400,000 variable rate loan saves around $100 per month in interest. If the offset account costs $15 per month, the net saving is still $85, so the fee is worth paying. But if the same lender offers a loan without an offset and without the monthly fee, and you're not using the offset, you're paying for a feature that's not helping you.
Lenders Mortgage Insurance and How It Affects Your Costs
If your deposit is less than 20% of the property value, most lenders require you to pay Lenders Mortgage Insurance. LMI protects the lender if you default on your loan, and the premium is calculated based on your loan amount and loan to value ratio. On a variable rate loan, LMI can add anywhere from $2,000 to $20,000 or more to your upfront costs, depending on how much you're borrowing and the size of your deposit.
You can usually add LMI to your loan amount rather than paying it upfront, but this means you'll pay interest on the premium for the life of your loan. LMI is a one-off cost, so once it's paid, it doesn't affect your ongoing repayments beyond the slightly higher loan balance.
Some lenders offer discounted LMI or waive it altogether for certain professions or first home buyers using government guarantee schemes. If you're borrowing with a smaller deposit, it's worth comparing LMI premiums across lenders because the difference can be several thousand dollars.
Rate Discount Strategies and Annual Reviews
Variable rate loans often come with an interest rate discount off the lender's standard variable rate. This discount might be 0.50% to 1.00% or more, depending on your loan amount, deposit size, and whether you're taking out a package. The discount is usually locked in for the life of the loan, but some lenders review it annually and may reduce or remove it if your circumstances change.
If your lender removes part of your discount, your repayments increase even if the standard variable rate hasn't moved. This happens more often than most people realise, particularly with loans that were written several years ago. It's worth checking your loan statement each year to confirm your discount is still applied at the same level.
Some lenders also offer bonus discounts if you meet certain conditions, such as making extra repayments or holding other products with the bank. These conditional discounts can disappear if you stop meeting the criteria, so read the terms carefully before assuming the discount is permanent.
What You Should Focus on When Comparing Variable Rate Loans
The total cost of a variable rate loan depends on the interest rate, the fees, and how long you hold the loan. A loan with a lower rate but higher fees might cost more over two years than a loan with a slightly higher rate and minimal fees. If you're planning to refinance or sell within a few years, upfront and discharge fees matter more than ongoing account fees.
When you're comparing loan options, calculate the total cost over the period you expect to hold the loan. Include application fees, monthly account fees, offset fees if applicable, and discharge fees. Then compare that total across lenders, not just the interest rate. A difference of 0.10% in the rate is about $40 per month on a $500,000 loan, so if one lender saves you $600 in fees, that's worth more than a small rate difference over the first year.
If you're not sure which combination of rate and fees works out cheaper for your situation, call one of our team or book an appointment at a time that works for you. We'll run the numbers based on how long you're likely to hold the loan and which features you'll actually use.
Frequently Asked Questions
What upfront fees do variable rate home loans charge?
Most variable rate loans charge an application or establishment fee between $300 and $600, plus a valuation fee of $150 to $300. Settlement fees of $100 to $300 apply when your loan settles.
Do all variable rate loans charge a monthly account fee?
Most variable rate loans charge a monthly account fee between $10 and $15, though some lenders waive this in exchange for an annual package fee. A few lenders offer loans with no ongoing account fees at all.
What is a discharge fee and when do I pay it?
A discharge fee is charged when you pay off your loan or refinance to another lender, usually between $300 and $500. It covers the cost of removing the mortgage from your property title.
Are offset accounts included with variable rate loans?
Many variable rate loans include an offset account as standard, but some lenders charge a monthly fee of $10 to $15 for it. Check whether your loan includes an offset and whether there's a fee before you apply.
How does Lenders Mortgage Insurance affect my variable rate loan costs?
If your deposit is less than 20%, you'll usually pay LMI, which can add thousands to your upfront costs. You can add LMI to your loan amount, but you'll pay interest on it for the life of your loan.
