What fees to expect when refinancing your home loan
There are many reasons someone might refinance their home loan. You might need a bit of extra cash to finance a much-needed renovation, or you’ve seen some enticing offers advertised. But when thinking about refinancing your home loan, you should always think about the costs and fees that come with your decision.
This guide gives a run-down of the most common refinancing fees you can expect to pay. Although some lenders may not charge these fees. it's important to understand which fees may be payable to decide whether refinancing will benefit you overall.
What costs are involved in refinancing a mortgage?
Loan application fee
Valuation fee
Title protection fee
Settlement fee
Discharge fees on existing loan
This is different from the settlement fee. Your previous lender may charge you discharge or exit fees once they have agreed to end your previous home loan agreement as part of the refinancing process.
Home loan exit fees were abolished for loans finalised after 1 July 2011 for variable rate loans, but lenders may still charge a discharge fee to reimburse them for reasonable administrative costs arising from closing out your existing loan.
The loan discharge fee would have been stipulated in the conditions of the loan contract. It’s also useful to remember that discharge fees vary between loan types. Lenders may also charge what is called a ‘break fee’ for ending a fixed rate loan early.
Fixed loan break fees
With a fixed rate loan you agree to borrow money for a fixed period of time at a fixed interest rate. If the fixed rate loan is repaid before the end of the fixed rate period, this may cause a loss to your lender, which may be passed on to you as a break fee.
If the fixed rate loan or any part of it is terminated early, break fees could be substantial. This is particularly true if market interest rates have reduced during your fixed rate period. It’s a good idea to ask your lender for an estimate of break costs before you arrange to repay a fixed rate loan early.
Government fees
Monthly administration fees on the new loan
Lenders mortgage insurance
At the point of refinancing, you may be charged a Lender's Mortgage Insurance (LMI). The cost may be a one-off or may be added into the loan. Generally speaking, the higher your equity in the property, the lower this fee will be, but depending on your risk profile and product type, this fee may be charged regardless of your deposit amount. Find out more about LMI and other risk fees.
When it comes to refinancing, there are many options available to you. Talk to your mortgage broker, accountant, or a financial adviser before making any refinancing plans.
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Need some help with your refinancing?
There's a lot refinancing can do; from unlocking your equity to consolidating debts in to your home loan.
Some great resources are here to help you understand your options.
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