The true cost of a home loan is all the interest you’ll pay plus every fee, over the time you actually expect to hold the loan. The interest rate is the biggest part, but upfront fees, annual package fees, a rate that reverts after a honeymoon period, and exit costs can change which loan is cheapest. The simplest way to compare is to add up interest and fees over the next five years for each loan you’re considering.
The fees that make up the true cost
| Fee | When you pay it | Typical size |
|---|---|---|
| Application or establishment fee | At the start | Nil to several hundred dollars |
| Valuation fee | At the start | Often waived, otherwise a few hundred dollars |
| Settlement fee | At settlement | Nil to a few hundred dollars |
| Lenders mortgage insurance (LMI) | At the start, often added to the loan | Can be thousands to tens of thousands if you borrow over 80% of the property’s value |
| Annual package fee | Every year | Often around $400 |
| Monthly account fee | Every month | Nil to around $10 |
| Redraw or offset fees | When used, or monthly | Varies |
| Break costs | If you leave a fixed rate early | Nil to thousands |
| Discharge fee | When you close the loan | A few hundred dollars |
| Government registration fees | At settlement and discharge | Set by each state |
The comparison rate rolls many of these into one figure, but it’s based on a $150,000 loan over 25 years and leaves out government fees, break costs and the value of features. That’s why it’s worth doing your own calculation.
Building rather than buying adds its own costs, such as interest during the build and progress payment timing. See construction loans.
How to calculate the true cost: a 5-year comparison
Five years is a sensible window, because many borrowers refinance or sell within that time.
Worked example on a $600,000 loan over 30 years (our calculations):
| Loan X: honeymoon rate | Loan Y: package loan | Loan Z: basic loan | |
|---|---|---|---|
| Rate | 5.99% for 2 years, then 6.79% | 6.29% | 6.49% |
| Fees | $600 upfront | $600 upfront plus $395 a year | $300 upfront |
| Interest over 5 years | $187,920 | $182,885 | $188,909 |
| Fees over 5 years | $600 | $2,575 | $300 |
| Total cost over 5 years | $188,520 | $185,460 | $189,209 |
The loan with the lowest starting rate (X) isn’t the cheapest over five years, because it reverts to a higher rate. The package loan (Y) costs the most in fees but the least overall, and if you’d use its offset account, it pulls further ahead.
Hidden costs of low-rate loans
A low advertised rate is a good start, but check what you might be giving up:
- Revert rates. Introductory or “honeymoon” rates step up after a set period. Diarise the date and check what the rate becomes.
- Missing features. Basic loans may not include an offset account, free redraw or the ability to split. If you’d use those features, a slightly higher rate can be cheaper overall. See home loan features worth comparing.
- Cashback conditions. Cashbacks often come with a slightly higher rate and clawback rules if you leave early. See whether cashback offers are worth it.
- Strict eligibility. The lowest rates often require a large deposit (low LVR), principal and interest repayments, or a minimum loan size.
- Fixed rate restrictions. A low fixed rate can come with capped extra repayments and break costs.
Discharge fees and break costs
When you close a loan, most lenders charge a discharge fee of a few hundred dollars, plus state government fees to remove the mortgage from the title. Exit fees on new loans were banned in 2011, but discharge fees and break costs on fixed loans still apply. Break costs depend on how far rates have moved since you fixed and how long is left on the term. Always ask for a written estimate before leaving a fixed loan.
A quick true-cost checklist
- List every upfront fee, including LMI.
- List every ongoing fee and multiply by the years you expect to hold the loan.
- Calculate the interest over that period, including any revert rate.
- Subtract any cashback, and the interest you’d save from an offset balance.
- Add likely exit costs.
- Compare the totals.
For the full comparison process, see how to compare home loans.
Frequently asked questions
What fees come with a home loan?
Common fees are application or establishment fees, valuation and settlement fees, annual package or monthly account fees, lenders mortgage insurance if you borrow more than 80% of the property’s value, break costs on fixed loans, discharge fees when you close the loan, and state government registration fees.
How do I calculate the total cost of a home loan?
Add the interest you’ll pay over the period you expect to hold the loan, including any revert rate, to every upfront, ongoing and exit fee. Subtract any cashback and the interest an offset account would save you. Five years is a practical comparison period.
What are discharge fees and break costs?
A discharge fee is what your lender charges to close the loan, usually a few hundred dollars. Break costs only apply if you end a fixed rate early, and depend on how much rates have moved since you fixed and how long is left on the term.
Sources
- ASIC Moneysmart, Choosing a home loan
- ASIC Moneysmart, Comparison rate
- Canstar, Average home loan interest rates, as at 2 October 2026
General information only. It does not consider your objectives, financial situation or needs and is not credit advice.