Refinancing can potentially save you thousands on your home loan. If you’re considering refinancing, you’re probably focusing on getting a lower interest rate. But you also have to account for a range of costs that come with refinancing.
Prior to refinancing, it’s vital you review whether the long term savings outweigh the upfront costs.
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.
There are a number of upfront fees that can come with refinancing, however, these fees and how much they cost differ between each lender.
It’s important to take the cost of these fees into account when refinancing but also look at ongoing costs. Some lenders may have higher ongoing costs but little or no upfront costs. We have zero ongoing monthly or annual 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.
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.
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.
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.
A lender will typically require a property to be valued prior to approving you for refinancing. The cost of this depends on the lender and the location of your property. Metropolitan areas are usually cheaper to value, given they are typically more accessible than rural areas.
A settlement fee is paid to your new lender to settle your new loan. It covers the cost of the lender arranging the loan settlement.
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.
Let’s have a look at a couple of scenarios to see how much you could save by switching to this loan.
If you’re an owner-occupier who owes $450,000 on your current loan, with 25 years left on your loan at an interest rate of 3.00% p.a, you could save approximately $34k over the life of your loan.
If you’re an owner-occupier who owes $750,000 on your current loan, with 30 years left on your loan at an interest rate of 3.5% p.a, you could save approximately $140k over the life of your loan.
Check out our refinance calculator to see how much you could save with us.
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 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.
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.
Yes, refinancing with another lender is called an external refinance. It refers to moving your mortgage from one lender to a different one.
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.