Variable Rate Loans: Fees and Costs You Need to Know

When you run your own business, you already know to read past the headline number.

Variable rate home loans work the same way. The interest rate you see advertised tells you part of the story, but the fees and ongoing costs attached to that loan determine what you actually pay. For self-employed borrowers who often navigate income assessment differently to wage earners, understanding the full cost structure matters even more, particularly when lenders price risk into both rates and fees.

Application and Establishment Fees

Most lenders charge an upfront application fee when you apply for a variable rate home loan, typically between $300 and $600. This fee covers the administrative work involved in assessing your application, and it's usually non-refundable even if your application is declined. Some lenders waive this fee during promotional periods or for owner-occupied loans, but it's common across most home loan products.

Consider a business owner applying for a loan with a $600 application fee and a $300 valuation fee. That's $900 due before settlement, separate from your deposit or conveyancing costs. If you're comparing loan options, these upfront fees can shift which lender offers the most competitive overall package, particularly if one lender waives fees but prices the interest rate slightly higher.

Ongoing Account Fees

Variable rate home loans usually come with an annual package fee or monthly account keeping fee. Annual fees typically range from $250 to $395, though some lenders don't charge them at all. Monthly fees are less common but can add up to a similar amount across a year.

The package fee often unlocks additional features like an offset account, redraw facility, and fee waivers on other products such as credit cards or transaction accounts. Whether that represents value depends entirely on whether you'll use those features. If you're planning to link an offset account to reduce interest, the package fee might be justified. If you're after a plain variable loan with minimal features, look for a lender that doesn't charge one.

Offset Account Fees and Linked Transaction Accounts

An offset account can reduce the interest you pay on a variable rate home loan by offsetting your savings balance against your loan balance. Many lenders include offset accounts in their annual package fee, but some charge a separate monthly fee, usually between $10 and $20.

What catches people out is the requirement to also hold a linked transaction account with the same lender, which might carry its own monthly fee unless you meet certain conditions like depositing a minimum amount each month. For self-employed borrowers who manage business and personal cash flow separately, maintaining those minimum balances isn't always convenient.

In our experience, clients who maintain healthy offset balances save more in interest than they pay in fees. But if your cash flow fluctuates and you're unlikely to keep much in the offset, a loan without an offset account and lower fees might work better.

Valuation and Settlement Fees

Lenders charge a valuation fee to assess the property you're purchasing or refinancing, typically between $200 and $400 depending on the property type and location. This fee covers the cost of the lender's valuer inspecting or reviewing the property to confirm it matches the purchase price and provides adequate security for the loan.

Settlement fees, also called documentation or processing fees, cover the preparation and lodgement of mortgage documents. These usually range from $200 to $500. Some lenders roll these fees into the loan balance, others require payment upfront. If you're refinancing and comparing offers, check whether the new lender is covering these costs as part of a switching incentive, which can offset part of the expense.

Discharge Fees When You Refinance or Sell

When you pay out your loan, either by selling the property or refinancing to another lender, your current lender will charge a discharge fee. This typically sits between $300 and $400 and covers the administrative cost of removing the mortgage from the property title.

If you're switching lenders to secure a lower rate, factor the discharge fee into your calculation. A lender offering a cashback or refinance rebate might absorb that cost, but if they don't, it reduces the immediate saving you'll see from the rate reduction.

Break Costs on Variable Rates

Unlike fixed rate loans, variable rate loans don't usually carry break costs if you pay out the loan early. You can make extra repayments, pay off the loan in full, or switch lenders without penalty. That flexibility is one of the main reasons borrowers choose variable rates, particularly if their income fluctuates or they expect to receive lump sums.

Some variable loans do limit how much you can repay above the minimum without penalty, particularly if the loan is packaged with a fixed rate component as part of a split loan structure. Check the loan terms before assuming full flexibility.

Redraw Fees and Conditions

A redraw facility lets you access any extra repayments you've made on your variable loan. Many lenders offer free unlimited redraws, but some charge a fee each time you withdraw funds, often around $20 to $50 per transaction. Others allow a set number of free redraws per year, then charge after that.

For self-employed borrowers, redraw can function as a cash flow buffer during quieter months, but only if the fees don't make accessing those funds impractical. If you're likely to need regular access to extra repayments, look for a loan with free redraw or consider an offset account instead, which gives you full access to your savings without restrictions.

Lenders Mortgage Insurance (LMI)

If your deposit is less than 20% of the property value, most lenders will require you to pay Lenders Mortgage Insurance. LMI protects the lender if you default on the loan, and the cost increases as your deposit decreases. On a loan amount in the mid-six figures with a 10% deposit, LMI can reach tens of thousands of dollars.

LMI is usually added to your loan balance rather than paid upfront, which means you'll also pay interest on it over the life of the loan. Some lenders offer low deposit loans with reduced or waived LMI under specific circumstances, and self-employed borrowers with strong financials may qualify. It's worth comparing how different lenders calculate LMI, as the premium can vary significantly.

Comparing the Full Cost Structure

When you're weighing up variable rate loan options, list out every fee alongside the interest rate. A loan with a slightly higher rate but no annual fee and free offset might cost less overall than a loan with a lower rate but $395 in annual fees and limited features.

For self-employed borrowers working with a mortgage broker, the broker can access fee schedules across multiple lenders and model the actual cost over one, three, and five years based on your expected loan balance and usage. That level of comparison is difficult to do on your own, particularly when fee structures differ widely between lenders.

Call one of our team or book an appointment at a time that works for you. We'll walk through the fees on the loans you're considering and show you what you'll actually pay, not just what the rate suggests.

Frequently Asked Questions