Beware those extra mortgage costs
So you're not caught short when taking out a mortgage, we've put together a checklist of some common costs you'll face.st
Wednesday, July 28th 1999, 12:00AM
by Paul McBeth
So you're not caught short when taking out a mortgage, we've put together a checklist of some common costs you'll face. Also check our earlier story, Moving House, for other likely home-buying charges.
Break costs: not the price you pay for smashing ornaments in a gift shop, but charges for extricating your money. You may have an existing fixed rate mortgage which you need to get out of early, another mortgage which must be discharged, or perhaps funds needed for the house deposit caught up in existing investments.
Valuation: Recent valuations (less than three months old) are generally required before you can borrow on a property and this will cost at least $300 to $500. Some lenders only ask you to pay over a certain LVR (loan to valuation ratio). For example, Interstar requires a valuation on all loans, but will refund the cost of this up to 76 per cent LVR.
Front-end fees: also known as establishment, application or loan approval fees, these are one-off charges by the lender for setting up your loan. Some lenders (eg AMP Banking) refund these if your application is declined. They're either a dollar amount (eg NM Lending $250, BNZ up to $500) or a percentage of the loan (such as AA Financial Services 1%, Cairns Lockie 0.5%). Sometimes you can negotiate and sometimes there are special deals in place. See our mortgage lenders' table for details of these fees.
Insurance for you...: Traditional mortgage protection insurance products cover you against permanent disability or death, with the amount of cover reducing as your loan reduces. Newer products, such as AMP Home Cover, are more flexible as they offer such features as protection against redundancy, bankruptcy and temporary total disablement, with the cover either reducing with the loan or staying the same. The cost will depend on your personal circumstances. Check your existing income protection insurance or life cover: they may already fit the bill.
....and insurance for them: called lender's mortgage insurance or mortgage indemnity insurance. You'll generally pay this if you're borrowing over 80 per cent of the LVR. This covers the lender in case you default on the loan (you don't meet the repayments) and the amount outstanding is greater than they'd get from selling the house. You'll be hit with a one-off fee calculated on a sliding scale (the higher the LVR, the higher the fee), usually between 0.65% and 1.375% and non-negotiable.