Understanding the basics of variable rate loan costs

The real cost of a variable rate loan sits beyond the interest rate

A variable rate loan carries more than just the advertised rate. Application fees, valuation costs, ongoing account charges, and lender decisions about offset access all shape what you'll actually pay. Most first home buyers focus entirely on the rate comparison without checking what the lender charges to set up the loan, maintain the account, or make changes down the track.

Consider a buyer picking up a townhouse in Kings Meadows. The lender advertises a competitive variable rate with offset included, but charges a $400 annual package fee, a $600 application fee, and another $300 for the property valuation. Over the first year, that's $1,300 in direct costs before a single repayment is made. A second lender offers a slightly higher rate but no ongoing fees and a valuation rebate at settlement. For someone holding the loan long-term, the rate matters more. For someone planning to refinance within two years, the upfront structure might cost less overall.

Fees vary wildly between lenders. Some waive application fees entirely and absorb valuation costs if you're borrowing above a certain threshold. Others charge for every interaction. Knowing what you're paying for, and whether the features attached to those fees align with how you'll actually use the loan, makes a tangible difference to your budget in the first twelve months.

Application and settlement fees you'll encounter upfront

Application fees typically range from nothing to around $600. Some lenders call it an establishment fee or a loan processing fee. The name changes but the cost is the same. It covers the lender's internal work to assess your application, prepare documents, and move the loan to settlement. Some lenders rebate this fee if you're borrowing a larger amount or taking a packaged product with an annual fee attached.

Valuation fees sit between $200 and $400 depending on the property type and location. The lender arranges the valuation to confirm the property is worth what you're paying. You pay for it even though the valuer is working for the lender. If the valuation comes in under the purchase price, the lender may reduce the loan amount or ask you to cover the gap. In regional areas like Riverside or Prospect, where comparable sales data can be thinner, some lenders take a more conservative view on valuation, which can affect how much you're approved to borrow.

Settlement fees, sometimes called documentation fees, usually sit around $200 to $300. Legal fees for your conveyancer or solicitor sit on top of that and vary depending on the complexity of the contract. For a straightforward purchase in Launceston, budget between $1,200 and $1,800 for conveyancing. If you're using the First Home Buyers concession schemes available in Tasmania, your conveyancer will need to lodge the relevant declarations with the State Revenue Office, and some charge a small additional fee for that work.

Ongoing fees that stay with the loan

Some lenders charge an annual package fee, typically between $300 and $400, in exchange for a lower interest rate or additional features like offset accounts, free redraws, or fee waivers on future transactions. Whether that trade-off works depends on how much you're borrowing and whether you'll use the features included. A package fee of $395 per year might deliver a rate discount of 0.15%. On a loan of $400,000, that discount saves roughly $600 in interest over the first year. The fee pays for itself. On a loan of $250,000, the saving drops to around $375, and the package costs more than it returns.

Monthly account-keeping fees used to be common but have largely disappeared on owner-occupier variable loans. A handful of smaller lenders still charge between $10 and $15 per month. Over a year, that adds another $120 to $180. If the lender is charging a monthly fee and not offering a meaningfully lower rate or better features in return, it's worth asking why.

Transaction fees for redraw, additional repayments, or splitting the loan are less common on standard variable products but still appear on some basic or no-frills loans. If you're planning to make extra repayments or access a redraw facility regularly, confirm upfront whether the lender charges per transaction. Some charge $50 or more each time you pull money back out of the loan, which removes much of the flexibility a redraw is supposed to provide.

Offset accounts and whether they come with a cost

An offset account reduces the interest you pay by offsetting your savings balance against the loan balance. If you have $20,000 sitting in an offset account linked to a $350,000 loan, you're only charged interest on $330,000. The more you keep in the offset, the less interest accrues. It's one of the more useful features on a variable loan, particularly if your income is irregular or you're saving for something while paying down the mortgage.

Some lenders include offset access only if you pay an annual package fee. Others include it at no cost on their standard variable product. A small number of lenders offer a partial offset, usually at 40% or 60%, which offsets only a portion of your savings balance rather than the full amount. In our experience, partial offset accounts rarely deliver enough value to justify choosing them over a full offset or a loan without one.

In a scenario like this: a couple buying in Newstead with irregular income from shift work and seasonal employment keeps $15,000 to $25,000 in savings depending on the time of year. That balance sits in a full offset account linked to their variable loan. During the months when the balance is higher, they're saving an extra $80 to $100 per month in interest. Over the life of the loan, that adds up to thousands of dollars in avoided interest. The lender charges a $395 annual package fee, but the offset delivers more value than the fee costs, and the couple keeps access to their savings without locking it into the loan.

Lenders Mortgage Insurance and how it applies to low deposit loans

Lenders Mortgage Insurance is a one-off cost charged when you're borrowing more than 80% of the property value. It protects the lender, not you, if you default on the loan. The premium is calculated as a percentage of the loan amount and increases the less deposit you have. On a 5% deposit loan, LMI can range from $8,000 to $15,000 or more depending on the lender, your income, and the purchase price. Most lenders let you add the LMI premium to the loan balance rather than paying it upfront, but that means you're paying interest on the premium for the life of the loan.

Under the Australian Government 5% Deposit Scheme, eligible first home buyers can borrow with a 5% deposit and no LMI. The government guarantees the portion of the loan between your deposit and 20%, so the lender doesn't require insurance. The scheme has no income cap and no annual limit on the number of places. In Tasmania, the property price cap is $700,000 for Launceston and regional centres, and $550,000 for other areas. The scheme works with variable rate, fixed rate, and split loan structures, though available features depend on the participating lender you choose.

If you're not eligible for the scheme, or the property you're buying sits above the cap, you'll need to factor LMI into your upfront costs or your loan balance. Some lenders charge lower LMI premiums than others, and a handful offer reduced LMI for certain occupations including healthcare workers, accountants, and legal professionals. If you're in one of those fields, it's worth checking whether your lender offers a discount before you sign.

Discharge fees when you sell or refinance

A discharge fee is what the lender charges to release the mortgage when you sell the property or move to a different lender. It usually sits between $300 and $400. Some lenders don't charge a discharge fee at all. It's not a cost you'll encounter for years, but it's part of the total expense of holding a variable rate loan and worth knowing about upfront, particularly if you're planning to refinance once you've built some equity or if your circumstances change.

If you're refinancing within the first few years to access a lower rate or better loan features, the discharge fee from your current lender and the application and valuation fees from your new lender all need to be weighed against the saving the new loan delivers. In some cases, lenders offer refinance rebates or fee waivers to attract borrowers switching from another institution, which can offset part of the cost.

What to check before you sign

Read the loan contract and the Key Fact Sheet your lender provides. Both documents list every fee the lender can charge, including the ones that only apply in specific situations like requesting a copy of a document, changing your repayment date, or asking for a loan variation. The Key Fact Sheet also shows the comparison rate, which includes the interest rate and most standard fees rolled into a single percentage. It's a useful reference point, but it assumes you're borrowing $150,000 over 25 years, which may not match your situation.

If the lender is offering a discount or waiving fees for the first year, confirm in writing when those waivers end and what the cost structure will be once the introductory period finishes. Some buyers take a discounted loan assuming the rate and fees will stay the same, only to find the package fee kicks in after twelve months or the rate jumps by 0.50% or more once the honeymoon ends.

Call one of our team or book an appointment at a time that works for you. We'll walk through the fee structures across the lender panel, show you where the trade-offs sit, and help you line up a loan that fits the way you'll actually use it.

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