Costs of refinancing home loans

What happens if you need to make some changes to your loan after you sign the dotted line? We’ll take you through the ins and outs of refinancing and the costs involved so you can decide if it’s a good choice for you.

*iSelect is the trading name of iSelect Mortgages Pty Ltd (ABN 86 148 217 181). iSelect Mortgages Pty Ltd is a credit representative (Credit Representative 400540) of Auscred Services Pty Ltd (Australian Credit Licence 442372). iSelect provides a referral to Lendi Pty Ltd, a Credit Representative of Lendi Group Finance Pty Ltd (Australian Credit License 442372). iSelect Mortgages Pty Ltd receives a commission from the Licensee for each new customer account created and for each home loan submitted through this service.

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What is refinancing?

In simple terms, refinancing a home loan involves replacing your existing home loan obligations with a new one that’s under different terms. Refinancing can be done through your existing lender, or by switching to a new product with a different lender.

Why choose to refinance?

As we get older, things change, including our lifestyle and financial needs. A home loan that suited you 10 years ago may not necessarily suit you now. Listed below are a few reasons people may choose to refinance their home loans.

  1. You’re looking to save on your monthly repayments by switching to a more competitive product or interest rate
  2. Your current loan may not have the features you’re looking for, such as redraw facilities, offset accounts, or flexible repayments.
  3. You may be reaching the end of a fixed rate term, which can be a good time to look for a better interest rate or a more flexible loan.
  4. You may want to consolidate other debts such as a car loan, personal loan, or credit card so that you can better manage your finances.
  5. You may want to increase or decrease your loan amount or term.
  6. If you’ve been thinking about renovating, you may be able to use the equity in your home to renovate.

What are the typical costs involved with refinancing?

It’s important to weigh these fees up against any potential savings you could make from switching to a loan with a more competitive interest rate.

The fees listed below are some of the main costs involved in refinancing a home loan, but they also can vary between lenders.

Break fees

●        This is an important one particularly if you have a fixed rate home loan.

●        If you decide to refinance during your fixed rate period, then you could have to pay a fee to leave your obligations.

●        Borrowers can be charged based on interest rates.

●        It’s a way for lenders to cover any potential losses they would encounter as a result of you leaving your contract with them.

Sign-up/application fees

●        Lenders often charge a fee for signing up with them. This fee can vary widely, depending on the lender and the amount of money you borrow.

Discharge fees (a.k.a: legal, settlement, loan exit, or termination fee)

●        You would typically need to talk to your current lender so that they can discharge your existing loan to your new lender.

Valuation fees

●        Your new lender may charge you a valuation fee so they can organise an up-to-date valuation of the property you’re paying off.

Land Registration fees

●        This is to arrange and certify for your mortgage to be taken on by your new lender with the Land Titles Office.

Lender’s Mortgage Insurance

●        If you own less than 20% of the property you’re paying off, then your new lender may charge you for Lender’s Mortgage Insurance. Read more about Lender’s Mortgage Insurance in our article here.

Ongoing/administrative fees

●        Some lenders charge an ongoing fee for having a mortgage with them throughout the life of your loan. You may be charged monthly or annual service fees.

If you’d like to know more and estimate the costs of switching your home loan, you can visit Moneysmart’s mortgage switching calculator here.

What can the refinancing process look like?

  1. Research: Understand the details of your current home loan and figure out what sort of changes you’d need to make to meet your financial goals.
  2. Compare with iSelect & Lendi: Hop online with us at iSelect, where we’ve partnered with Lendi to make it easier to compare home loans and find a great deal when you’re ready to refinance.
  3. Get your property valued: This is an important step, especially if you’ve renovated in the past 12 months.
  4. Apply: As you apply for a new home loan application, this will typically involve a credit check and any other documentation they require.
  5. Complete legal documents: Your lender will provide the right legal documents for you to complete.
  6. Receive approval: Your lender approves your application.
  7. Reach settlement: The property is then transferred to your name.

When can I refinance?

You’ll typically first need to have a certain amount of equity in your home, which is the market value of your home minus what you still owe.

The amount you’d need varies, but usually anywhere between 5% to 20% at minimum. The more you have, the better chances you may have with succeeding in an application to refinance.

If you refinance with less than 20% equity, you may be charged Lenders Mortgage Insurance (LMI).

Is refinancing worth it?

It all depends on your personal situation, and as you can see, refinancing a home loan can be a lengthy process.

This is why it’s important to follow the appropriate steps and weigh up the associated costs with any potential savings you could make from switching to a home loan with a more competitive interest rate.

How long can it take to refinance a home loan?

This process can vary between lenders, but it typically takes a few weeks, or 30 to 60 business days, especially if you are changing lenders.

Each institution will need to prepare the relevant documentation as outlined in the above table of costs.

Where can I start comparing options?

At iSelect we’ve partnered with Lendi to make it easier to help you look for a great deal on your home loan. Click here to get started comparing from a range of lenders online, or give Lendi a call on 1300 186 260.

Last updated: 15/03/2022