Refinancing your mortgage can be a strategic financial move, offering the chance to secure a lower interest rate, access equity, or switch to a loan type or features better suited to your needs and circumstances. But like many financial transactions, a home loan refinance often comes with its own set of costs.
If you’re a homeowner thinking about switching deals, it’s important to weigh these expenses against the potential benefits so you can make an informed decision.
To help, in this blog, we’ll break down some of the common expenses you’ll likely encounter in a mortgage refinance.
Firstly, there’s the application fee for the new loan. Also known as an establishment fee, this one-time payment covers the lender’s costs of processing your new mortgage application. Depending on the lender, this fee can cost up to $1,000. However, in some cases, lenders might waive it altogether.
Your new lender will want an updated valuation of your property to ensure it serves as adequate security for the loan. Some lenders may absorb this cost or include it in the application fee, but, if not, you’ll need to fork out anything between $100-$600.
If you have less than 20% equity in your home, you may need to pay lender’s mortgage insurance (LMI). LMI can be a significant cost, ranging from a few thousand to tens of thousands of dollars depending on your home’s value and equity position. It’s important to also note that previous LMI payments don’t transfer when you do a home loan refinance.
Discharge fees are what your current lender will charge you to close out the existing loan. This fee is typically between $200 and $400, but will vary from lender to lender.
If you decide to refinance your home loan while on a fixed-rate mortgage, you’ll likely face break costs. These fees can vary greatly but expect to pay a sum that reflects the loss your lender incurs due to your loan not running for the originally agreed term.
Both your existing and new lender may charge legal fees to cover the paperwork involved in the discharge and establishment of the mortgages.
When you refinance your mortgage, be mindful of ongoing fees that might come with the new loan. These can vary greatly but could be up to $400 per year.
Now, this might seem like a long list of expenses, but it’s crucial to weigh these costs against the potential savings from a lower interest rate or better loan terms. For example, if you’ll save $200 per month by refinancing and the total cost to refinance is $2,000, you’ll break even in 10 months. Any savings after that point is money back in your pocket.
So does it cost to refinance your mortgage?
Yes, that’s why a mortgage refinance isn’t a decision to take lightly.
But while refinancing has costs, there are also large potential financial gains. For instance, a lower interest rate could save you tens or even hundreds of thousands of dollars over the life of the loan. It’s essential to compare these benefits against the costs to work out if a mortgage refinance is a smart financial move.
An expert mortgage broker, such as Shore Financial, can help you with the sums and make sure you’ve considered all angles.
Want to save money on your home loan? Shore Financial can help. To discuss your home loan refinance options, call us on 1300 416 700, email us on info@shorefinancial.come.au or fill in this online form.
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