The costs of refinancing
Refinancing your home loan can be a great way to save money. You’ll get a lower monthly payment with a market-appropriate interest rate and the opportunity to choose a product that might better suit your lifestyle.
However, the cost of refinancing a home loan can outweigh the benefits. Fees, loan terms and hidden costs can add up in the long term.
Do you know the real cost of financing a home loan?
Loan application fees
When you refinance, you take out a whole new loan. If your lender charges loan application fees, you’ll be stung with them a second time around.
Some lenders offer home loans with zero application fees, which could save you several hundred dollars when you refinance.
A low rate could mask high ongoing fees. Be sure to look at exactly what the refinanced loan will cost you on a regular basis, including any ongoing fees, fixed-rate periods or introductory offers. Ongoing annual fees are typically charged in advance i.e. the first annual fee will be paid when the loan settles. Some loans can help you save here too, with no ongoing account-keeping fees.
Your new mortgage payment
Switching to a new, lower rate is obviously appealing, but like chocolate-covered cheese it might be better in theory. What is the term of your new loan? If you’ve already paid five years’ worth of interest, is it a good idea to start again with a new 25-year term?
Make sure you have a plan before you refinance. A low rate might be ideal if you’re planning to pay out quickly, but extending the life of your mortgage could cost more in the long run. Our repayment calculator can help you see exactly how much you’ll be paying over the life of your loan.
Loan discharge fees
A refinancing loan works by paying out your existing mortgage. Depending on the type of loan you’ve got, you may be stuck with a chunk of cash still to pay.
Variable-rate loans often come with minor administrative costs when paying out early (about $350) but fixed-rate loans can be different. If the market has shifted in your favour since you first fixed, you could be up to ‘break costs’ – a way for a lender to recoup the difference. You’ll need to ask your current lender exactly what this cost might be for you.
Government registration costs
Another cost that many people are not aware of are government mortgage discharge and registration costs. These are payable since the outgoing and incoming lenders are required to register the discharge of the old mortgage and register the new mortgage receptively. The costs of each registration varies between states and territories between $120 to $160 per registration (Note: There are two registration charges to refinance).
At times, lenders offer cashback incentives that can more than cover the cost of refinancing. These typically range from $1,000 to $4,000. Inquire today about these offer.
So, how much does home loan refinancing cost? It depends on what you have already and the new loan you’re choosing. If you weigh up each cost and compare it to your current loan, you can make sure you’re getting the best possible deal.