Fees and interest rates

The price for a home loan and all the features it offers comes in the form of interest and fees. Some lenders provide details of these in their brochures, and many give current charges on their websites.

These are the specific costs you need to check:

Application fee

If you're applying for a home loan in your own name, this fee may be a percentage of the loan value or a flat amount, perhaps to a maximum of between $250 and $500. Some lenders have no application fee. It is one of the most negotiable fees.

A few lenders charge higher fees if you're taking the loan through a company or family trust or buying an investment property. A fee of up to one percent of the loan amount is typical.

Low equity premium

If you borrow over 80 percent of the value of a property, many lenders will charge a 'low equity premium' or 'mortgage indemnity insurance' fee. This reflects the fact that these sorts of loans have higher risks for lenders. The low equity premium insures them against the loss they might face if you get into trouble and can't repay the loan.

The charge is worked out on a sliding scale. If you borrow 80 percent of a property's value, the fee may be around 0.2 percent of the loan value - that's $200 on a $100,000 loan. Depending on the lender, it could go up to 1.5 or even 1.9 percent of the loan if you borrow 95 percent of the property value. That's up to $1,900 on a $100,000 loan.

You can either pay this in cash or have it added to the loan.

Valuation

Many lenders ask you to provide a valuation from a registered valuer if you want to borrow over 80% of the property's value. A valuation will typically cost $300 to $500.

Fixed loan repayment fees

You can often make a small increase in fixed loan repayments, or a lump sum of five percent of the loan, at no charge. But if you want to make bigger payments or even repay the whole loan early, you may be charged an administration fee and penalty interest fee. The penalty will be based on how much you are repaying, how long the loan has to run, and how much interest rates have changed since you took the loan out. It covers the loss the lender faces if falling rates mean they can't re-lend the money at the same rate you were paying.

If rates have gone up since you took the loan out, there may be no penalty interest to pay, although a fixed administration fee may still apply.

Switching fees

If you stay with the same lender but change some aspect of your loan - for example, switching from a floating rate to a fixed rate, you may be charged a fee. This can be several hundred dollars, but again you can try to negotiate on this.

Redraw or 'top up' fees

If you borrow an extra amount on the mortgage, a fee may apply to cover the additional work for the lender. This fee is negotiable with some lenders.

Banking fees

Some mortgage such as revolving credit loans may have day-to-day banking services built into them. There can be a flat fee such as $10 or $12.50 per month, or the charge can be the sum of all the transaction fees, less a rebate based on the size of the loan balance. These fees may also be negotiable.

Interest rates

Over the term of a loan you'll pay much more in interest rates than fees. If you take a very long term loan, it is possible that the amount of money you pay in interest will be more than the sum you borrowed. That's a good incentive to pay off your loan as quickly as you can.

There is strong competition between lenders on interest rates. The other big influence on mortgage rates is the movement of wider interest rates in the financial markets, and these are largely influenced by the Reserve Bank through the official cash rate (OCR).

You can find current interest rates from the lenders themselves or from a broker, but there are also some websites which collect rates from many different lenders. Other sites include www.interest.co.nz and Good Returns.