Maybe you’ve had your current home loan for a few years, want to use your home’s equity for renovations or another purchase, or want to lower your payments with a better interest rate after recent rate hikes.
Refinancing can be a smart way to manage your home loan because it lets you get a better deal and reach your goals.
Whatever your reason, you might be wondering about the trade-offs.
So, what are the costs of refinancing a mortgage? Is it worth it? Or will your best intentions save only a little money?
Let’s see what it actually is.
What is Refinancing?
Refinancing means replacing your current mortgage with a new one.
Since home loans last a long time and things often change, refinancing is like checking in with your lender to see if your loan still works for you.
Simple, right?
Sometimes, refinancing means getting a new loan with a lower interest rate or resetting your loan term to lower your repayments (or both).
Other times, you might want to use equity (the difference between your property’s value and your loan amount) to buy another property, fund a renovation, or pay off another debt.
If you’re refinancing for a lower rate, you’ll likely switch lenders because they often give the best rates to new customers, not existing ones.
Whatever your situation, always look for the best deal while keeping an eye on the costs of switching.
Costs of Refinancing a Mortgage
Let’s talk about the main issue we are here for: fees.
This is often why homeowners see refinancing as too difficult. But with some perspective, you might see these fees as a small, worthwhile hurdle to saving money. They usually total around $1,000 for a common refinancing scenario, and the potential savings can be much larger.
So, how much does it cost to refinance a home loan? Let’s look at the common fees…
Bank Discharge Fee
Most lenders charge a fee if you end your loan early. This fee ranges from $100 – $400, depending on the lender. Some don’t charge at all if you’re savvy. This fee can have different names, like settlement fee, loan discharge fee, or termination fee.
Here are the settlement/discharge fees charged by major banks (as of January 17, 2024):
- ANZ: $160
- CBA: $350
- NAB: $350
- WBC: $350
Government Fees
These are one-time fees charged by state revenue offices to lodge and remove the mortgage on the title. You’ll pay this fee twice when refinancing: once for discharging the mortgage with your current lender and again for lodging it with your new lender.
Here are the mortgage registration fees by state (as of July 1, 2023):
- ACT: $166.00
- NSW: $165.40
- NT: $165.00
- QLD: $224.32
- SA: $187.00
- TAS: $152.19 (registration), $188.68 (discharge)
- VIC: $128.50 ($118.90 if electronic)
- WA: $203.00
Fixed-Rate Break Fee
If you have a fixed-rate loan, lenders may charge a fee to end your fixed-rate period early if market conditions have changed. This fee can be large and varies based on your loan and market rates when you set up and end your fixed rate. Check with your lender before deciding to prepay or end your fixed rate early.
Package Fee
Some lenders offer bundled products with benefits like fee waivers, more flexible loans, fee-free credit cards, and discounts on other banking products. These packages usually cost around $400 per year. If the package includes things you need, it might be worth it. Always compare the total cost, including all fees and interest rates.
Application Fee
Some lenders charge this fee to cover the admin costs of setting up your new loan. It’s typically a one-time, non-refundable payment of up to $600, often waived for package deals.
Valuation Fee
You may need to pay for a property valuation, which helps your new lender assess its value. Costs vary, but some lenders include the valuation in your application fee or waive it as part of a package deal.
Lender’s Mortgage Insurance (LMI)
If you’re borrowing more than 80% of the property’s value, you may need Lenders’ Mortgage Insurance, which protects the lender. This cost can be high and varies based on factors like your loan size and location. It usually ranges from 2% to 5% of the total loan amount. For example, a $500,000 loan could cost between $10,000 and $25,000 in LMI.
Your Valuable Time & Efforts
Not a tangible fee, but consider the time you’ll spend refinancing. We aim to make it a quick and painless process.
How Much Is It Really?
So, you might be wondering if all these fees are worth it.
Typically, you’ll face less than $1,000 in fees, depending on your state. The upfront costs are quite small for a common scenario, and there are savings to be made in ongoing fees if you shop around.
Additionally, you could get a lower interest rate and potentially receive a cashback bonus for switching.
To see how much you could save (after costs), you can talk to our expert too by scheduling a consultation call at 1300 GET LOAN. Our experts can help you with it. How easy is that?
When Is It a Good Time to Refinance?
Now that you know the costs, you might be wondering when to refinance. Here are the most common reasons people refinance, which might apply to you…
Availability of Lower Interest Rates
“If there’s a chance to save money, why not take it?” If lower interest rates are available, even a small reduction can save you thousands over the life of your loan. Additionally, with many reputable lenders out there, you might find options with lower or no fees.
Not sure what your current interest rate is or if you can get a better one? No judgment here, but let our experts help you check it out.
Property Has Increased in Value
House prices are a hot topic these days. If your property has increased in value, you might be able to refinance to a lower rate and access some of that equity.
Want to Access Equity for Purchases or Renovations
Homeowners sometimes refinance to access equity for specific purposes like buying another property, renovating, paying off other debts, or purchasing assets like a car.
Fixed Rate Is About to Expire
Fixed-rate home loans keep your interest rate and repayments the same for a set period. When this period ends, you might face a higher rate. This is a good time to reassess your situation and avoid a potential increase in your interest rate.
Take Advantage of a Cashback Offer
Many lenders offer up to $3,000 for switching your home loan to them. If you’re savvy, you can also secure a better interest rate. However, keep in mind there are costs associated with refinancing, but potential savings usually outweigh them.
Circumstances Have Changed
If you’ve gotten a promotion, landed a better-paying job, or experienced a significant life event where you need access to money, it’s a good idea to check in with your broker to explore your options.
If you’re still unsure whether it’s a good time to refinance, we recommend reviewing your home loan every few years. This ensures you’re not stuck with a poor rate or paying too much.
Is Refinancing a Home Loan Worth It?
You want a straightforward answer, but the truth is, it depends on your personal situation. However, in many cases, yes, refinancing is worth it.
So, the first step is to talk to a broker who can run the numbers and forecast your savings. Moreover, we’ll even communicate with the lenders on your behalf, making the process easy for you.
Just click on the link and Book an Appointment with our experts (Online), we will hear your problems, understand your situation, and come up with various options for you and you can decide the option that best fits your needs.
So what are you waiting for? Get started with Nfinity Financials or contact us at 1300 GET LOAN today.
