What are the costs of refinancing your home loan?

Refinancing can potentially save you thousands on your home loan, but there are also costs that come with doing so.
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Refinancing can potentially save you thousands on your home loan, but there are also costs that come with doing so. Prior to refinancing, it’s vital you review whether the long term savings outweigh the upfront costs.

Why refinance?

Refinancing a home loan occurs when a borrower moves their existing mortgage to another. The main reason for this is typically to access a lower interest rate, which can bring down your monthly repayments, reduce the length of the loan, and reduce the amount of interest you pay on the loan. In short, refinancing is all about saving money.

Types of fees you can expect to pay

Refinancing can often save you money in the long term but there are several upfront costs that you may have to fork out for in the short term.

Early exit fees

The Gillard Government banned home loan early exit fees on new loans on 1 July 2011. However, if you borrowed your loan prior to this, you still may be charged them. Some lenders scrapped early exit fees but if you have to pay them, they can rack up into the thousands of dollars. Contact your current lender if you’re considering refinancing to see if you’ll be subject to early exit fees.

Break fees

A fixed-rate mortgage means you’ll lock in your interest rate for a period of time, typically one to five years. If you refinance in this fixed period you’ll have to pay break fees, to cover the losses the lender may experience as a result of the loan not running for the originally agreed term. Break fees can be complex to calculate so it’s worth contacting your lender to ask for an estimate of how much it may be if you decide to refinance. Break fees are usually very expensive, so much so that in some cases that it’s recommended you hold off refinancing.

Application fees

If you are switching home loans to a new to a new lender, you may be charged an application fee, also known as an establishment, set-up, or start-up fee. This is a one-time fee charged to cover the cost of processing and documentation of the mortgage. It can cost up to $700 but many lenders waive it in order to garner new business.

LMI

Lenders mortgage insurance (LMI) is charged when you borrow more than 80% of a property’s value from a lender. If you haven’t built up enough equity in your home or the property has dropped in value, you may have to pay LMI when refinancing. LMI can rack up into the tens of thousands and borrowing more money means you’ll pay more in interest over the life of the loan, so where possible it’s recommended you avoid paying LMI.

Is refinancing worth it?

Refinancing is all about saving you more money on your home loan. If you had $350,000 still to pay on your mortgage over 20 years, at an interest rate of 3.5%, switching to us could save you $42,865 over the life of your loan. You’d also have access to unlimited redraws, unlimited additional repayments, and pay no ongoing fees.

Check out our refinance calculator to see how much you could save with us.

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FAQs 

Will I need to pay Lenders Mortgage Insurance (LMI) when refinancing? 

You may need to pay LMI if you’re borrowing more than 80% of your home’s value when refinancing. Check with your current lender to see how much equity you have in your home.

How much can you refinance a home for? 

How much you can refinance a home for will often come down to the lender but you’ll typically need at least 5% equity in your home. Additionally, having less than 20% equity in your home will mean you have to pay LMI. 5% equity in your home. Additionally, having less than 20% equity in your home will mean you have to pay LMI.

Do you need a solicitor to refinance? 

You don’t legally need a solicitor to refinance, as your existing and current lender will typically work out all of the necessary paperwork. However, you still may want a conveyance or solicitor to review documents, so it can come down to the borrower's discretion.

Can you refinance with another lender?

Yes, refinancing with another lender is called an external refinance. It refers to moving your mortgage from one lender to a different one.

Can you refinance with the same lender? 

Yes, refinancing with your existing lender is called an internal refinance. It refers to moving your mortgage to a different product with the same lender.

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