Refinancing a home loan involves switching your loan & mortgage from your current lender to another. There are a number of reasons as to why you might want to do this, the most common being to save money on interest.
However, it’s important to consider all the costs involved when you make the decision to change lenders. Any costs involved should be worked out by your broker or lender and factored into the new loan amount.In doing so you should not have to contribute any cash towards the refinance.
Whilst Exit Fees (also known as Deferred Establishment Fees) are now illegal in new loan contracts they may still be payable on loans taken out prior to 30 June, 2010. They were commonly charged on loans paid out within the first 4 years of being taken out and generally ranged from $600 to $1,000.
Importantly, break costs are still legal and do apply if you’re looking to get out of a fixed rate home loan. It’s unlikely to be worthwhile refinancing a home loan whilst it is fixed unless there is a very specific and urgent reason to do so.
Estimated Total: $0
Mortgage Discharge and Registration Fees are payable to the Land Titles office whenever refinancing a home loan. This is because the lender you are moving to has to first remove the existing mortgage on the property in order to register their mortgage. If there are multiple properties involved there may be additional fees payable.
Mortgage Registration fees vary from state to state. In Western Australia the fee is currently $164.
Estimated Total: $328
Discharge fees are paid to the outgoing lender in order to do the necessary administrative and legal work to pay out the loan and remove the mortgage. They vary considerably from lender to lender ranging from $200 to $650 (some lenders do offer free discharges on certain products).
Estimated Total: $350
There will generally be some entry costs for taking out the new loan. Examples include Application Fees, Valuation Fees and Legal/Settlement Fees. Many of these fees may be waived but some are considered non-negotiable.
Estimated Total: $250
You will be required to pay your outgoing lender for the interest accrued up until interest was last charged to your account.
For instance, if interest is usually charged on the 7th of each month and your refinance settles on the 14th they would deduct 7 days worth of interest from the loan. For this reason a buffer is usually added to all refinances to ensure there is no shortfall.
As this is interest you would have paid anyway it is not technically a cost in refinancing a home loan. However it’s still important to ensure it is factored into the new loan amount.
Estimated Total: Not Ascertainable
In total the costs to refinance a home loan are likely to be around $928. This will vary depending on your current financier and the new lender.
Lenders occasionally offer incentives in order to get you to switch home loans. This generally consists of either:
If you’re interested in refinancing your home loan a mortgage broker with their finger on the pulse will be able to advise you on current promotions.
An experienced broker will also be able to help you evaluate if the promotion is worth it for you, and most importantly if the loan is suitable for your situation.