What You Actually Pay on a Variable Rate Home Loan
The interest rate gets the attention, but the total cost of a variable rate home loan includes ongoing fees, upfront charges, and sometimes costs that only appear when you use certain features. A loan advertised at a lower rate can end up costing more over the year if the fee structure doesn't match how you'll use it.
Most lenders charge an annual package fee, typically between $300 and $400, which covers the loan account and any linked offset account. Some lenders bundle this into what they call a professional package, which might also include fee waivers on transaction accounts or credit cards. If you're not using those extras, you're paying for features you don't need.
Consider someone borrowing for a property in Applecross who wants an offset account to manage cash flow from rental income. If the lender charges a $395 annual fee but waives the offset account fee, that's one bundled cost. Another lender might advertise no annual fee but charge $10 per month for the offset, which adds up to $120 across the year. The second option looks cheaper at first glance but costs more if you're actually using the offset to reduce interest.
Application and Settlement Charges
Most lenders don't charge an application fee anymore, but some still do, usually between $250 and $600. Settlement fees, also called establishment fees, sit in the same range and cover the lender's cost of setting up the loan. These are one-off charges, and while they seem small compared to the loan amount, they add up when you're already covering stamp duty, conveyancing, and building inspections.
Some lenders let you capitalise these fees into the loan amount instead of paying them upfront. That might help with cash flow at settlement, but you'll pay interest on those fees for the life of the loan. On a loan amount of $500,000, adding $600 in fees means you're borrowing $500,600, and that extra amount accrues interest from day one.
If you're working with tight cash reserves, particularly as a first home buyer in Perth's northern suburbs where every dollar of savings counts toward your deposit, capitalising fees can make sense. Just understand the trade-off. You can read more about how deposit size affects your overall borrowing position on our first home buyers page.
Ongoing Account Fees and Offset Costs
The annual package fee usually covers your loan account and one offset account, but not always. Some lenders charge separately for the offset, either as a monthly fee or as part of a higher annual package cost. If you're not planning to use an offset account because you don't have surplus cash sitting around, a no-frills variable loan without the package fee can save you $300 to $400 each year.
Offset accounts reduce the interest you pay by offsetting your account balance against the loan balance. If you have $20,000 sitting in a linked offset and your loan balance is $450,000, you only pay interest on $430,000. That's valuable if you keep a buffer in the account, but if your offset balance stays low, you're paying for a feature that's not doing much work.
In our experience, people who run their income through an offset and pay expenses from it see the most value. Tradies, small business owners, and anyone with variable income can use the offset to reduce interest during high cash flow months without locking funds into the loan permanently. If your income is steady and you don't keep much in savings, the fee might outweigh the benefit.
Discharge Fees and Exit Costs
When you pay off the loan or refinance to another lender, most lenders charge a discharge fee to cover the administrative cost of removing their interest from the property title. This fee sits between $150 and $400 depending on the lender, and it's easy to overlook when you're comparing loans at the start.
Some lenders also charge a loan account closure fee on top of the discharge fee, though this is less common now. If you're planning to refinance in a few years to take advantage of rate changes or to access equity for another purchase, those exit costs add up. Over a ten-year period, if you refinance twice, you could pay discharge fees three times, which is another $1,000 or more in costs that don't appear on the rate comparison.
This becomes relevant in Perth's inner suburbs like Mount Lawson or Maylands, where property values have moved quickly and homeowners refinance to pull equity out for renovations or investment purchases. Each refinance triggers another discharge fee with the outgoing lender.
Redraw Fees and Extra Repayment Limits
Most variable rate loans let you make extra repayments without penalty, and those extra payments sit in a redraw facility that you can access if needed. Some lenders charge a fee every time you redraw, usually between $10 and $50 per transaction, while others allow unlimited free redraws through online banking.
If you're the type to put extra cash into the loan when you have it and pull it back out for larger expenses, a loan with free redraw makes more sense than one with transaction fees. Over the life of the loan, even small redraw fees add up if you're accessing that facility regularly.
A scenario we see often involves someone buying in Joondalup or Ellenbrook who pays extra into the loan during the first few years, then redraws to cover the cost of a second vehicle or school fees. If the lender charges $20 per redraw and they access it five times a year, that's another $100 annually that wasn't part of the original rate comparison.
Valuation Fees and Lenders Mortgage Insurance
The lender will arrange a valuation of the property before approving your loan, and most lenders pass that cost on to you, typically between $200 and $400 depending on the property type and location. This isn't a fee the lender profits from, but it's still a cost you'll pay at some point during the application process.
If your deposit is less than 20% of the property value, you'll also pay Lenders Mortgage Insurance, which protects the lender if you default. LMI isn't a loan fee in the usual sense, but it's a significant upfront cost that gets added to the loan amount. On a property purchase with a 10% deposit, LMI can run into the thousands, and because it's calculated as a percentage of the loan amount, it grows with the property price.
For borrowers in Perth using the First Home Owner Grant or the First Home Loan Deposit Scheme to get into the market with a smaller deposit, LMI is often unavoidable. Understanding how it affects your total borrowing costs helps you decide whether it's worth saving a larger deposit or moving forward sooner. You can explore how your deposit size affects borrowing limits on our borrowing capacity page.
Comparing Total Cost Across Lenders
When you're comparing variable rate loans, the interest rate is only part of the picture. A loan at 6.10% with a $395 annual fee and free redraw might cost less over the year than a loan at 6.05% with a $395 annual fee, a $10 monthly offset fee, and $20 redraw charges if you're using those features regularly.
The comparison rate is supposed to capture this by rolling the standard fees into a single percentage figure, but it's based on a $150,000 loan over 25 years, which doesn't reflect most borrowing scenarios in Perth. If you're borrowing $600,000 or paying the loan down faster, the comparison rate won't give you an accurate picture of your actual costs.
We regularly see this when someone's refinancing their current home loan and focused entirely on getting a lower rate without considering whether the new loan's fee structure suits how they manage repayments. If you've been making extra payments and using redraw, moving to a loan that charges for those features can wipe out the rate saving. If you're considering a refinance, our refinancing page covers what to look at beyond the headline rate.
How Package Deals Affect Overall Value
Some lenders offer a professional package or premium package that includes the home loan, an offset account, fee waivers on transaction accounts, and discounted rates on credit cards. The package fee is usually higher, around $395 to $450 annually, but if you're already banking with that lender and using multiple products, the fee waivers can add value.
If you're only using the home loan and offset, the extra features don't deliver much. You're paying for a bundle when all you need is the core product. On the other hand, if you're running a business or managing multiple accounts and the package waives monthly account fees that would otherwise cost $15 to $20 per month, the package pays for itself.
The value depends entirely on your situation. Someone buying an investment property in Scarborough who also has a business loan and a transaction account with the same lender might find the package worthwhile. Someone buying their first home in Rockingham who just needs a loan and an offset probably doesn't.
Understanding what you'll actually use makes the decision clearer. If you're weighing up loan features for an investment property, our investment loans page covers how different structures work for different strategies.
When Lower Fees Matter More Than Lower Rates
There are times when a slightly higher interest rate with lower ongoing fees makes more sense, particularly if you're borrowing a smaller amount or planning to pay the loan down quickly. On a $300,000 loan, the difference between a 6.10% rate and a 6.15% rate is around $150 per year in interest. If the lower rate comes with a $395 annual fee and the higher rate has no annual fee, you're better off with the higher rate.
This calculation flips as the loan amount increases. On a $700,000 loan, that same 0.05% rate difference costs around $350 per year, so the lower rate wins even with the annual fee attached. The loan amount, how long you plan to hold the loan, and how you'll use the features all feed into which structure delivers lower total costs.
For anyone working through these calculations, our mortgage repayment calculator can help you model different scenarios with and without fees included.
Variable rate loans give you flexibility to make extra repayments, access redraw, and adjust your strategy as your finances change, but that flexibility comes with a fee structure that varies significantly between lenders. Knowing what you'll actually pay, not just what the advertised rate suggests, puts you in a position to choose a loan that fits how you'll use it. Call one of our team or book an appointment at a time that works for you.
Frequently Asked Questions
What fees do you pay on a variable rate home loan?
Most variable rate home loans include an annual package fee between $300 and $400, plus potential charges for application, settlement, discharge, and offset accounts. Some lenders also charge for redraw transactions or ongoing account maintenance.
Do all variable rate loans charge an offset account fee?
Not always. Some lenders include the offset account in the annual package fee, while others charge a separate monthly fee, usually around $10 per month. If you're not using an offset account, choosing a loan without the package fee can save you several hundred dollars each year.
What is a discharge fee and when do you pay it?
A discharge fee covers the lender's cost of removing their interest from your property title when you pay off the loan or refinance. It typically ranges from $150 to $400 and is charged each time you exit the loan.
How does the comparison rate help you understand total loan costs?
The comparison rate rolls standard fees into a single percentage to show the true cost of the loan. However, it's based on a $150,000 loan over 25 years, so it may not reflect your actual borrowing scenario if your loan amount or term differs significantly.
When do lower fees matter more than a lower interest rate?
On smaller loan amounts or if you plan to pay the loan down quickly, a slightly higher rate with no annual fee can cost less overall than a lower rate with ongoing fees. The difference becomes more significant as the loan amount decreases.
