Refinancing costs

There can be some fantastic benefits in refinancing your home loan - just make sure you weigh up the different expenses that can be involved in the transfer to make sure it’s the right choice for you.

Key costs of refinancing

Note that not all of these may apply, depending on your circumstances. It’s worth having a chat with a Mortgage Choice broker to explore the costs involved with your individual situation, and balance these with any potential cost savings of switching home loans.

Exit Fees

Exit fees may apply when you pay out a loan early, usually in the first three to five years of your term. It could be a percentage of the remaining loan balance or it may be a set charge. Check your loan contract for more details.

Although exit fees have been banned on new loans taken out after 1 July 2011, they could still apply to loans taken out before this date.

Worth Knowing: Exit fees don't include break costs, which can be imposed if you bail out of a fixed rate loan before the fixed term expires. It’s worth speaking to your Mortgage Choice broker if you are thinking about refinancing a fixed rate mortgage.

Borrowing costs

When you refinance, your new lender may charge a range of upfront fees. However not all lenders charge these fees and some may be negotiable. They may include:

Loan application fee  - charged when you apply for a new home loan

Valuation fee -  your lender may charge a fee to have your property valued by a professional property valuer

Settlement fee  - your lender may charge a fee to pay out your current mortgage

Lenders Mortgage Insurance

LMI is a type of insurance designed to protect the lender, not the home owner, if you cannot keep up the loan repayments. It applies if you borrow 80% or more of your home's value and isn't transferable between lenders. This means that even if you paid LMI when you first purchased your home, chances are you'll be asked to pay LMI again when you refinance.

You may be able to capitalise LMI (add it to the loan) though you need to be careful that this won't push your level of borrowings over the lender's preferred 'loan to valuation ratio' (LVR) - the amount you borrow as a percentage of your home's value.

Stamp Duty & fees

Some states charge a tax on your mortgage which is known as stamp duty, which is calculated on the amount of the loan. If you increase the size of your loan when refinancing, stamp duty may be payable.

You may also need to pay a Mortgage Registration Fee which is imposed by the Land Titles Office (or equivalent) for registering your mortgage onto the title record for the property.

Comparing the costs with the benefits

If you’re refinancing with the goal of reducing your monthly repayments and trimming the long term interest cost, it’s important to look at how long it will take to recoup the costs of refinancing with the savings on the new loan. See more regarding the potential savings involved.

We can help you to explore your options. Talk to us today.

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