There are many good reasons to refinance your home loan. For starters, switching your mortgage to one with a lower rate could save you a significant sum over the life of your loan. You can also refinance to pull out equity, get better features or reduce your loan term.
But everything comes with a price. So you should do your sums to see if the long-term benefits of refinancing outweigh the costs before you switch.
To help, we’ve outlined some of the most common costs of refinancing below.
Mortgage application fees
Also known as an ‘establishment’ fee or an upfront fee, this one-off payment covers the administrative costs of setting up a loan.
Ending a loan also comes with admin. So lenders charge you a discharge fee (or termination fee) to cover the costs of closing your mortgage.
As your new loan will also be secured on your property, the lender will usually want to know how much it’s worth and pay for a professional valuation.
When you have a fixed-rate home loan, you might have to pay a fee to your lender if you want to switch before your fixed-rate term ends. And the longer the length of time left on your fixed term, the higher the break costs will likely be.
Mortgage registration fees
This is a state government fee paid when a mortgage is established or discharged against a property. So, unfortunately, you’ll have to pay it twice when refinancing your home loan. The fee covers the costs of adding your mortgage to a state registry, so future buyers can check for any existing claims on the property.
Lender’s mortgage insurance
Lender’s mortgage insurance (LMI) is a one-off insurance premium a lender will generally charge when you have less than 20% equity in your property. LMI protects the lender from financial loss should you subsequently default on your mortgage.
Unfortunately, if you paid LMI on your existing mortgage and your equity is still less than 20% of the property’s value, you will likely have to pay it again when you refinance.
So how much will refinancing cost me?
Refinancing costs vary depending on your individual circumstances.
For example, if you have a fixed-rate home loan and want to switch before the end of the fixed term, you’ll likely have to pay break fees. However, if you’re on a variable-rate mortgage, that expense isn’t something you need to think about.
On top of that, different lenders have different fees. And not just the price they charge, but whether they charge it at all.
Take mortgage application fees. Some lenders may waive this cost. However, they might charge higher ongoing fees than other lenders. So you need to look at the whole cost of refinancing, not just compare individual fees one by one when you are shopping around.
At Well Home Loans, we’re proud of being an ethical lender. So we are fully transparent about the fees we charge on all our products.