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7:48 pm - Tuesday December 6, 2016

Untold Costs of Home Loans

| Home Finance and Mortgage, Loans | Rating: 4.5
by Numan

As we all know, there are an assortment of costs to take into account when buying a new property. However, many of these are not clear to see to the uninitiated, such as first home buyers or first investment property buyers. The hidden costs or other outgoings to get to the settlement point can be high, and sometimes even brokers get these costs wrong, which can wreak havoc on a smooth settlement process.

The first types of unseen fees are normally assumed, but only in the backs of peoples’ minds. These include the Loan Application Fee or Mortgage Establishment Fee, but the lenders will also normally charge you for the mortgage registration and titles search fees as well. Valuations are commonly free to the customer as they’re included in application fees, but some banks will charge for any additional valuations for other properties being valued, for example a guarantor’s home.

The second types of costs are fees going to other parties. Firstly, any inspections you want as a condition of the contract, for example building and pest inspections, need to be paid for upfront. Once the loan is approved, the settlement agents or conveyancers or solicitors you’re likely to use to administer the settlement process all have very different cost bases, so shop around, but make sure that this person will communicate and look after you – service is very important at this point. Also to be considered are the costs of stamp duty, if applicable. I’ve covered this subject in a previous article, but you’ll need to ensure that your funds to complete are sufficient to cover any stamp duty obligation you may have – you will likely be aware of this cost, as the type of property also attracts different duties, so your purchase strategy should have taken this into account already. Additionally, home insurance will need to be factored into your budget, as often this is a condition of the banks.

One of the largest costs if borrowing over 80% of the value of the property (or 80% LVR) is Lenders Mortgage Insurance (LMI). However, this will normally be capitalized onto the top of your principal at settlement, so you’ll be paying this off over time, rather than making a large cash payment at the outset. However you should be aware that some banks have a ceiling on the amount the LVR can be increased because of the LMI, so you may be required to pay a higher deposit.

The other costs that are very often overlooked are the new costs once the loan has settled, especially if it’s a newly built home.  Of course, there are all of the incidentals to take care of, such as removalists (or new furniture etc), and connections of utilities. Plus, if you’ve just built, you’ll likely have several very expensive finishing points to now pay for, such as landscaping or fittings or even a pool. This can often run into the tens of thousands of dollars. However, there are some lenders that will offer a high-limit, pre-approved credit card at the same rate as the home loan for this kind of situation, so if prepared for, the costs here can be managed easily.

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