Switching lenders to get a better interest rate or to access equity can save you thousands and help you to achieve your long-term financial goals.
However, many homeowners fail to consider the true cost to refinance their home loan.
What are the costs of refinancing?
Several costs come with refinancing your home loan, although some of these costs are added to your new mortgage:
- Discharge fees: Your existing lender may charge you a fee of $150 to $250 to exit the mortgage.
- Mortgage registration fees: Both your new and existing bank may charge to register and deregister your mortgage,respectively, generally costing $135 (varies between states).
- Application fee: Applications fees range from $200 all the way up to $1,000 with some specialist lenders.
- Settlement fee: The new lender charges this after from $100 to $200.
- Valuation fee: 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 fees: The new bank will run a title registry search and charge $40 to $50.
Not all banks charge all these fees!
You can get a rough estimate of the cost to refinance your mortgage 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 are planning 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 amount of the rebate will depend on whether you’re an existing customer or a first home buyer.
These rewards can be tempting and lenders offer them on a regular basis but you shouldn’t refinance purely for a cash back.
Are the costs 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.
Luckily for Michael, the past 4 years has seen his property value increase to $580,000.
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.
Michael now has access to $120,000 in equity with only a small addition to his monthly repayments, a much better option than using a high-interest rate car loan or credit card.
What other factors should I keep in mind when refinancing?
Apart from the cost to refinance, there are non-monetary costs that borrowers often overlook:
- Doubling up on LMI: LMI is charged by the 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, negatively affect your credit score and, ultimately, your chances of approval. More than 2 enquiries in a 6-month period can significantly limit the number of lenders you are eligible to refinance with.
- 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.
Find out your eligibility 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 including:
- Ideally, you should owe less than 90% of the value of the property.
- If you’re refinancing from a fixed rate, early exit fees and break costs may be applicable and may make the refinance more expensive.
- Mortgage brokers may charge you a fee if you refinance early to another lender.
What are the pros of home loan refinance?
There may be various reasons to refinance 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 renovating and making improvements to your property.
- Debt consolidation: You can take all of your debts and roll them into your mortgage, therefore, 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 right 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 discover the cost to refinance your home loan versus the benefits.