The Cost to Refinance
Refinancing can be a great way to save money if you believe you’re paying too much for your loan. But there is more to it than just finding another loan with a lower interest rate and making the change. Before making the switch, we need to ensure the savings you could make outweigh the fees involved. Here are the different refinance costs that we need to consider:
Exit Fee, Discharge Fee or Break Fees
The costs you incur direct from the bank you are leaving, will be determined based on how your loan is structured. As a minimum, you will be liable for what the banks call a discharge fee. This will vary from approximately $250 to $350, but if your loan is currently Fixed, you may be liable for break fees or as some banks call it an “early repayment adjustment”. This fee varies depending on the amount owed, the interest rate you were locked into, the current interest rate and the duration of your loan.
Establishment & Legal Fees
Also known as ‘application’, ‘up-front’ or ‘set-up’ fees, these cover the lender’s cost of preparing the necessary documents for your new home loan and are payable on most new loans. Costs here will vary, but are normally in the vicinity of $200-400.
Lender’s Mortgage Insurance (LMI)
The non-transferable premium means that if you hold less than 20 per cent equity at the time of your refinance, you may have to pay LMI even if you paid it on the original loan. Extra care is also needed here because, whether or not you hold 20 percent of the original valuation of the property, you may not if the property’s value has decreased; while LMI may not have been a consideration at all in the original loan, it may be payable on the refinance.
Other Government Charges
The Government Fess are applied for the registration and de-registration of a mortgage so that all claims on a property can be checked by any future buyers. Varying from state to state, these costs will be anywhere from $300 to $500 or sometimes even more.
As a baseline, I suggest that people budget approx. $1,000 for a refinance, it can sometimes be a little more, or a little less, but it’s a good starting point. You will even find that many lender’s will run a promotion that entices refinance business via a cashback offer that cover the costs of making the refinance happen. That is my job as a broker, to look at all costs involved, and compare apples with apples to make sure a refinance will ultimately benefit you the consumer.
If you personally have a mortgage right now, and it hasn’t had a health check in a year or two, the best thing you can do is reach out to me directly. A quick discussion with me, and i’ll be able to let you know if there’s the ability to make you genuine savings on the cost of your mortgage. I think that people underestimate how big of a negative impact overpaying has on you financially in the long run.
Please feel free to contact me directly if you would like to have the discussion on whether or not a refinance will be able to save you money!
0451 668 673