Refinancing your home loan may be a smart financial move, particularly in an environment with significant movement on interest rates and many fixed rate loans expiring.
Below we break down a few of the typical costs involved in refinancing your home loan.
Costs to consider when refinancing
Mortgage application fee
If you’re switching lenders, you will likely have to pay a mortgage application or establishment fee. This covers the cost to your new lender of processing your application.
This upfront cost usually ranges from $200 to $1000, depending on the lender and the type of loan. It may or may not include a valuation fee.
Loan discharge fee
Leaving your current lender will likely result in a discharge fee for the administrative costs associated with terminating your mortgage.
Often loan discharge fees are around $200-$400. However, they can be up to $1000.
Property valuation fee
Your new lender may require a valuation to be done when assessing your refinancing application. The cost largely depends on the lender and the location of the property – expect to pay more for rural properties.
Valuation fees may range from $200 to $600 in cities, and $600 to $1000 in rural areas. Some lenders offer free property valuations.
Break fees
If you are on a fixed rate loan, you may have to pay break fees to get out of it early. Break costs can be expensive and complicated to calculate.
The easiest way to understand your break costs is to ask your current lender for a rundown.
Settlement fee
Remember paying a settlement fee when you originally took out your loan? You’ll be up for that again if you decide to refinance.
Settlement fees are paid to the new lender to settle the loan and typically range from $100 to $400.
Mortgage registration fees
The land registry in your state or territory will charge a mortgage registration fee to register your mortgage on the title record for the property.
The cost could be anywhere from $120 to $210.
Exit fees
The Federal Government got rid of exit fees from 1 July 2011—but this is only for contracts signed after this date. If you signed before then, you may pay exit fees for ending your loan early. Check with your lender if you’re unsure.
How much refinancing can save you
While all of the costs mentioned above may seem overwhelming, it’s important to consider the long-term benefits of refinancing.
How much you could save by refinancing depends on the size of your mortgage, how many years you have left on the loan, how much lower the new interest rate is and whether it has interest-saving features.
Like to discuss your options?
As your finance broker, we can help you decide whether refinancing is the right move for you in the current economic climate. We can help you weigh up the costs versus the benefits of refinancing and explain whether a different loan could better suit your financial situation and goals. GET IN TOUCH today.
