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Cost to Refinance a Home Loan
Refinancing your home loan may be an effective way to secure a lower interest rate and help get you back on track much sooner. However, there are some fees to consider.
In many cases, the long-term benefits of refinancing can outweigh the upfront costs, but it’s a good idea to factor them in to your projected savings to avoid any surprises down the track.
Here’s a handy guide on what to expect when refinancing, including the common fees and charges, how to work out if refinancing your home loan is worth it, and how long it generally takes.
What fees can I expect to pay?
While the terms and conditions of every home loan are different, here are some of the common fees that you may need to account for when refinancing your home loan:
- Early exit fees. Early exit fees only apply to home loans taken out before 1 July 2011, and may be charged by your existing lender when you pay out your home loan in full. Also known as ‘early termination’, ‘deferred application’ or ‘early discharge’ fees, the law limits these fees to the recovery of a credit provider’s loss due to the early termination. Some credit providers have removed these fees from existing loans taken out before 1 July 2011, and some credit providers may pay your exit fees when you move your loan across to them.
- Break fees. Break fees apply to fixed interest rate home loans and may be charged if you refinance to another lender before the end of the fixed term.
- Application fees. If you’re refinancing your home loan to a new lender, they may charge you an application fee. These can range from $0 to more than $1000, but may be open for negotiation if the new lender is prepared to compete for your business.
- Annual fees. Ongoing fees up to around $750 may be charged on packaged home loans that usually offer discounted rates and extra features.
- Lenders Mortgage Insurance (LMI). LMI generally applies if you are borrowing more than 80 per cent of the value of your home. You may need to pay LMI to your new lender when refinancing your home loan, even if you have already paid to it your existing lender. However, some lenders and insurers don’t charge LMI until the loan reaches 90 per cent LVR. A qualified mortgage broker will be able to help you find a suitable option for your circumstances.
Always remember to check the product disclosure statement and your contract carefully to see what fees may apply, or speak with a mortgage broker.
How long does refinancing take?
Once you’ve identified the right home loan product for you, refinancing generally takes around four to six weeks. However, it can take longer if your current lender delays the process or you experience difficulty submitting the necessary paperwork.
Working with a mortgage broker can help to reduce the time it takes to transition to a new lender and make the process a lot less stressful. They will also likely achieve a better outcome for you.
Is refinancing worth it?
Refinancing your home loan can result in considerable long-term savings, but it largely depends on your personal situation and current home loan.
For example, say you are currently paying five per cent interest per annum on a $500,000 home loan and refinance to a lender offering a four per cent interest rate per annum.
Considering the fees involved in refinancing – including a valuation fee, application fee, registration of mortgage fee and a discharge of mortgage fee – you could still save up to $5000 in interest a year. In the first year alone you’d easily make back any exit or set-up fees you’ll pay to refinance, not to mention the long-term savings you could benefit from.
Another way refinancing could save you money is if you are paying high interest rates on multiple credit cards and you consolidate all your debt into a single refinanced home loan at a lower interest rate.
It’s a good idea to review your home loan every 12 months or so to make sure it’s still meeting your needs. Just remember to carefully weigh up the potential long-term savings versus any fees you may incur.
Setting yourself up financially starts with your biggest investment, your home loan, so find one that suits your needs. Call 13 19 20 to speak with one of our qualified mortgage brokers, or use our online Refinancing Calculator to see how your current home loan stacks up.