When people think of the costs related to a home loan they naturally consider mortgage rates and the fortnightly or monthly payments that they expect to make throughout the term of the loan. But there are other expenses related to assuming a mortgage that are often thought of as hidden fees and expenses—hidden because they are rarely advertised or displayed. While these costs are typically substantially less than the principle and interest on the loan and are ordinarily one-time expenses, they can add up to significant sums so it pays to understand what these fees are and what they cover.
Common mortgage fees include:
Application Fees
Most mortgage lenders charge a fee to initiate and process an application for a mortgage. The cost of the fee is usually somewhere in the range of $200 to $600, so it can pay to shop around. It’s worth noting that some lenders use higher application fees as a way to make up for marginally lower interest rates.
Valuation Fees
Lenders want to be certain that home prices aren’t overvalued so they typically require a market assessment of the property, and that shows up in the form of a valuation fee. The fee is ordinarily several hundred dollars and the larger and more expensive the property, the higher the cost.
LMI
Lenders Mortgage Insurance is required if you place a deposit on the property of 20% or less. This is done to protect the lender in case you default on the mortgage at some point before it matures. The cost is variable and decreases as the amount of your down payment increases, but can run from hundreds to thousands of dollars so it really pays to check on this expense.
Conveyancing Fees
This refers to the legal work that revolves around the mortgage and can be done by solicitors or—at a much lower cost—licensed conveyers. Fees can be expected to run at least $500.
Stamp Duty
This is a charge issued by the state in which the property in question is located and covers the cost of transferring ownership from seller to buyer. Since the charge is government issued, it doesn’t vary by lender, but it can and does vary by state. The charge is a percentage of the sale cost of the property with the assessed percentage ordinarily higher for more expensive properties.
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You have to ask beforehand for these hidden cost before signing up anything.. They can be really tricky but you need to equip yourself with enough knowledge so that you won’t be shocked with how much you are going to pay.
Corey,
In the subprime market, homebuyers are likely to find prepayment penalties. This is a most frustrating penalty and it’s one that should be avoided. Why should you be penalized for buying your home at a faster rate than expected?
Christian L. @ Smart Military Money