Fees and charges
Information about the costs involved in obtaining credit
There are numerous costs associated with borrowing money in most circumstances. Under the terms of the Consumer Credit Code, the lender must provide full details of these costs in a pre-contractual statement, and provide regular account statements which detail any ongoing costs which might apply. Some of the fees and charges you might find yourself having to pay when you purchase a credit product — particularly a substantial one such as a home loan — include:
- A loan application or establishment fee. This is a one-off "administration" charge to set up the loan.
- Stamp duty.
- Mortgage insurance may apply when buying an established property, particularly if you are borrowing more than 80 per cent of the value of the property or if you are buying property outside the Perth metropolitan area.
- Consider taking out income protection insurance. Unlike mortgage insurance which only protects the lender, this is a policy that you can take out to help pay your mortgage if you are unable to work due to illness, retrenchment or other event.
- A valuation fee may apply when buying an established property. These arise when the lender enages a valuer to ensure that the market price you've agreed to pay for the property is close to its real value. Note that although you pay the valuation fee, you don't usually receive a copy of the report.
- Regular loan administration fees may apply.
- Changing the features of your loan during its term (such as applying for a fixed interest rate) may also attract fees.
You should also ask about any fees or penalties that apply to:
- paying out your loan early;
- redrawing any extra payments you may have made towards the loan; and
- negotiating another fixed term on your loan.
In general, the principal cost involved in obtaining credit is the interest charged. It's important to remember that the longer it takes you to pay off a loan, the more interest you will pay. The interest rate may also rise during the term of your loan, which will increase your repayments. The rise in your repayments may affect your ability to keep making the payments, and if the loan is secured — as in the case of a home mortgage — you may lose your property as a result. The Code requires lenders to provide comparison rates which allow you to evaluate the true cost of the loan (including not only the interest but also some fees and charges), and you should pay particular attention to these.