More Australians are becoming increasingly aware of the savings to be had when refinancing. By switching lenders and choosing a lower interest rate, homeowners could potentially save thousands in reduced mortgage repayments.
But, have you stopped to consider what the cost to refinance actually means for you?
Here’s our guide on the 6 most common refinance fees you might come across and the amounts these can differ across lenders.
Sometimes in order to close your loan, your previous lender may trigger a discharge fee. Prior to July 2011, these fees could cost many homeowners thousands of dollars. With recent legislation changes, exit fees were abolished and it’s now more so an administrative cost averaging around $150 - $300, depending on your lender.
To set up your new loan with your new lender, you may encounter a variety of upfront setup fees. Similar to the costs you had to pay to set up your original loan, you should be prepared to account for a loan application fee, valuation fee, title protection fee and settlement fee.
If you currently have a fixed rate home loan and are changing to a new variable loan, you may be charged a ‘break’ cost. This is to cover any associated loss your bank may have from you ending your fixed contract earlier than the agreed term. It can be a complicated calculation as the bank needs to consider the length of the loan left, your current fixed rate and current market interest rates. You’ll also often find that the amount charged here could determine when you refinance i.e. during your fixed term contract or after it ends.
Lender's Mortgage Insurance (LMI)
An additional cost of refinancing your home loan is Lender’s Mortgage Insurance. If upon leaving you own less than 20% of the equity in your property, your new lender may charge you with Lender’s Mortgage Insurance to protect themselves against you defaulting on the loan.
Government fees vary from state to state – and when you refinance, these are two-fold. You’ll be charged a fee to deregister your previous home loan and another fee to register your new loan. Fees for these can cost approximately $100-$200 each, but we’d recommend to double check with your local Office of State Revenue for exact charges.
Monthly account fees
Some lenders may charge a monthly account fee. Before switching, research and ask different lenders what you’re likely to encounter on a regular basis and factor that into your final decision of lender. This could also turn out to be instead, an annual or package fee.
When it comes to refinancing, there’s a whole lot of options available to you, as well as a number of home loan features to consider. Make sure you understand the mechanics behind the new loan you’re entering into, and the costs to refinance. If you’re not sure, speak to one of our ALI mortgage brokers for help. They’ll also be able to help you with a quote for our loan protection insurance. If you’ve already got a Loan Protection Plan with us to cover you against a wide range of unexpected life events, this can help to limit stress when refinancing. Unlike other bank products, we’re not linked to your loan and we’ll still provide coverage (for the life of the policy) when you switch.
Loan Protection Plan is jointly issued by Hannover Life Re of Australasia Ltd ABN 37 062 395 484 (Death, Terminal Illness, Living and Accidental Injury Benefits) and QBE Insurance (Australia) Limited ABN 78 003 191 035 AFSL 239545 (Involuntary Unemployment Benefit). It is distributed by Australian Life Insurance Distribution Pty Ltd ABN 31 103 157 811 AFSG 226403 (ALI). ALI receives commission for each policy sold. Any advice provided is of a general nature only and does not take into consideration your personal objectives, financial situation or needs. You should consider the Product Disclosure Statement when deciding if this product is appropriate for you.