Restructuring, part 2: the costs of restructuring

If you’re thinking about restructuring your home loan, it’s important to weigh up the costs and benefits of doing so. While you may be excited by the thought of that trip to Thailand or that new car you could buy with your unlocked equity, there are definitely fees involved that you’ll need to account for.

This is something that a mortgage broker can help you with. In part two of this three part series on home loan restructure, we look at the costs associated with the process, to give you a basic understanding before you come to us.

Missed part one on reasons to restructure your home loan? Read it here.

Break fees

Break fees are what your lender may charge you if you “break” your mortgage during the fixed rate period. This fee is designed to safeguard the lenders and can cause a lot of headaches for you. If you do your research and talk to us, you can figure out just how out of pocket you’ll be.

In addition to break fees, you may find you’re up for other costs, such as an establishment fee (a one-off payment when you start your loan), a termination/settlement fee (if you pay out your mortgage in full) or an exit fee (a fee for paying out your loan early). If you took out your home loan after June 30 2011, you won’t be up for exit fees, as the Federal Government made it illegal for lenders to charge them after this date.

Break fees are what you could be charged if you “break” your mortgage during the fixed rate period.

New lender charges

If you switch to a new home loan provider, they may not cover all the costs of your new loan. It’s best to find out whether your new lender expects you to pay fees for things such as mortgage application, property valuation and settlement. Mortgage application fees for a new home loan can be as low as nothing at all and as high as $1,363, according to Canstar – which is obviously a big variance.

Potential fees can come not only from your current home loan provider but also from your new one, if you’re switching lenders.

Stamp duty

Stamp duty is a tax charged by state governments when the transfer of land or property takes place. This perennial bugbear of home owners new and old could potentially make a reappearance when you choose to restructure. You can use our stamp duty calculator to work out how much you may be up for. Stamp duty depends on the value of your property and varies between states and territories. For a property worth $700,000 in NSW, you could expect to pay roughly $27,263 in stamp duty and other government fees.

Lenders Mortgage Insurance (LMI)

This is a one-off fee that applies only in instances where you are you taking out a high risk loan (that is, when you wish to borrow over 80 per cent of the property’s value). LMI is taken out by lenders in order to insure themselves against borrowers who cannot repay their loans. If you switch to another lender and aren’t able to transfer your old LMI, then you may be required to pay it again.

Understanding these fees can be like trying to navigate a mind-boggling maze, and not all of them will necessarily apply to you. Mortgage Choice brokers can give you free and informed advice about all of the costs associated with restructuring so that you can make sense of it all. And we make it easy for you, by simplifying all the financial terminology into language that you understand.