Refinancing your home loan can be a great way to save money on interest. You can do this by getting a lower rate, shortening the loan term, or consolidating other debts into your home loan. You can also access cash, or change the features of your loan. However, it is important to weigh the cost of refinancing, along with the benefits, before making a decision.
What Are The Costs Of Refinancing?
| Refinancing Fees | Fee Range ($) |
|---|---|
| Discharge Fee | 350-1,000 |
| Break Cost | Varies |
| Mortgage Registration Fee | 118-203 (varies across states) |
| Application and Settlement Fee | 0-1,000 |
| Property Valuation Fee | 300-600 |
| Title Search Fee | 20-150 |
Some of these can be added to your new loan amount so that you don’t have to pay them out of pocket.
Now, on to breaking down the costs of refinancing.
Closing Costs
- Break cost: If you leave your fixed home loan early, your lender may charge you a break fee. This covers potential losses the lender might experience because of your early exit. Each lender has its own way of calculating break cost, depending on various factors like your fixed-rate term remaining, interest rate, and repayment amount. For an estimate, you can use our break cost calculator .
- Discharge fee: Your existing lender may charge you a fee to exit the mortgage. The discharge fee typically covers administrative costs associated with terminating the existing mortgage agreement, such as paperwork, processing and lien release. The amount will depend on the lender.
New Loan Costs
- Mortgage registration fee: Your new and existing bank may charge to register and deregister your mortgage, respectively. The fee charged varies accross states.
- Application fee: The lender charges this fee to cover the costs of processing your new application.
- Refinance Settlement fee: This is applied to cover the administrative and legal expenses related to finalising the refinancing process.
- Property valuation fee: This can vary according to property type and location. The new lender will charge around $300 to $600 to have your property valued, but we can order a free upfront valuation on your behalf.
- Title search fee: The new bank will run a title registry search to check for any liens, easements, or other encumbrances on the property’s title, ensuring that the buyer is getting a clear title to the property.
Not all banks charge all these fees!
You can get a rough estimate of the mortgage refinance fees by using our refinance calculator.
Complete our free assessment form or call us on 1300 889 743 to speak with a specialist mortgage broker if you plan to refinance your home loan.
You May Qualify For A Refinance Cashback
Several banks may provide a cashback to refinance your home loan to them.
The rebate amount will depend on whether you’re an existing customer or a first-home buyer.
Apart from cashback deals, banks also offer discounts on Lenders Mortgage Insurance (LMI) and application fees, as well as a refund on the annual fee for professional package home loans.
These rewards can be tempting, and lenders offer them regularly, but you shouldn’t refinance purely for cash back.
Consider taking advantage of attractive offers, as the refinancing process is much more straightforward than it used to be.
Are The Costs Of Refinancing Worth It?
Over the long term, yes, usually, the cost to refinance is worth it.
These upfront refinance costs are minimal compared to the thousands of dollars that you may potentially save on interest and other fees over the life of your mortgage.
For example, let’s say Michael purchased his property 4 years ago for $475,000 and now owes $400,000 on his home loan, repayable over the remaining 26 years of his loan term.
His interest rate is 4.78% with his current lender, and his monthly repayments are $2,242.
He wants to access the equity in his property to complete some non-structural home renovations and purchase a new car for the family, estimated at $24,000 and $40,000, respectively.
Luckily for Michael, his property’s value has increased to $580,000 over the past four years.
His loan top-up brings his new mortgage balance to $464,000 (80% of the property value), and he switches to a 3-year fixed rate of 4.14%, a rate reduction of 64 basis points.
This brings his new repayments to $2,253 per month, only a slight increase of $11 a month.
Meanwhile, Michael now has access to $120,000 in equity with only a small addition to his monthly repayments, a much better option than taking out a car loan or credit card, which would both have much higher interest rates.
What Other Factors Should I Keep In Mind When Refinancing?
Apart from the direct costs of refinancing, there are other costs or consequences that borrowers often overlook:
- Doubling up on LMI: Lenders Mortgage Insurance is charged by lenders when you borrow more than 80% of the property value, so if you owe more than 80%, you may end up paying LMI again.
- Adding enquiries to your credit file: Shopping around with many lenders can leave multiple enquiries on your credit file, making a negative impact on your credit score and, ultimately, your chances of approval. More than two enquiries in six months can significantly limit the number of lenders with which you are eligible to refinance.
- Services of the new lender: There can be various issues with a bank, including below-par customer service, a slow and painful loan or post-settlement process, or no branch access.
Am I Eligible To Refinance?
You should check with your mortgage broker to discover whether you’re eligible to refinance your home loan. Various factors may restrict your ability to refinance. Ideally, you should owe less than 90% of the value of your property.
What Are The Pros Of Refinancing A Home Loan
There may be various benefits to refinancing your home loan:
Depending on whether you’re a homeowner or an investor, if and when you decide to refinance can vary drastically:
- Get a better interest rate: Lenders offer different types of promotional rates so it’s worthwhile to find out what’s on offer before refinancing your home loan.
- Access equity to invest: Once your loan amount is less than 80% of the property value, you can usually access the equity in your home in order to buy an investment property.
- Cash out to renovate: Some lenders allow you to drawdown your equity as cash for the purposes of renovating and making improvements to your property.
- Debt consolidation: You can take all of your debts and roll them into your mortgage, making it easier to manage your finances and reducing your debt repayments.
- Extend your loan term: You can refinance your loan to another bank and increase the loan period. If, for example, you have 25 years remaining with your current lender, you can refinance and get a 30-year loan period.
- Switch products: You can refinance your home loan and switch the loan type, such as switching from variable to fixed, principal and interest (P&I) to interest only, or add more features like an offset account, redraw facility or a credit card.
Is It A Good Time To Refinance?
Your home loan may have been suitable for you a few years ago, but your circumstances change over time, and so do your needs. Generally speaking, if you haven’t checked your interest rate in the past two years, you could be missing out on a lower rate.
Call us today on 1300 889 743 or enquire online to learn more about the cost of refinancing and your refinancing options.