How much does it cost to refinance?
The exact cost of refinancing varies from lender to lender due to the different fees and charges applied every situation is different.
What are common refinancing costs?
Common fees for refinancing include discharge fees, break fees, set up fees such as mortgage registration, settlement, valuation fees, insurance costs and preparation of documents.
Discharge fees are a fee charged by your existing bank to cover the administrative cost of your home loan. Discharge fees are usually $100 to $300.
If your mortgage is on a fixed rate, a break fee usually applies. It’s an amount which cover the loss the bank or lender will incur from you breaking your fixed home loan early. You need to speak with your current lender and ask for a payout figure to know the exact costs. It will change daily due to the interest being charged on a daily basis.
Set up fees
These cover a variety of fees including registration, application, settlement and bank valuation fees. Many lenders will absorb most of these fees when setting up a new home loan, others charge them to the borrower or add them to the home loan. These fees typically range from $60 to $300 each.
Lenders Mortgage Insurance
Lenders mortgage insurance, also known as LMI, is another insurance to protect the lender. It is used when borrowers require more than 80% of the value of the property for their home loan. The cost varies depending on the value of the property and the size of the deposit from the borrower. It usually costs thousands and is often added to the loan.
Preparation of Mortgage Documents
Preparation of mortgage documents is a cost usually absorb by lenders. On the rare chance a borrower is charged this fee, it is typically around $100 – $300.
Lenders Title Insurance
This is not a common fee and protects the lender against problems with the title of your property, for example if someone sues you and makes a claim against your property. This insurance does not protect you or how much you have paid off the home. It is commonly used in fast finance and usually costs between $500 and $3,000.
How can you reduce these costs?
Use a broker
A broker will work on your behalf to secure your home loan. They know how to negotiate fees, find solutions to issues with lenders you might not be able to sort out yourself and possibly help reduce the cost.
Know the fees
Ask both your current lender and new lender what all the fees are. While the interest rate might be really appealing with lender A, if they have high upfront costs, monthly fees, high exit fees or hidden charges, lender B with a slightly higher interest rate but no fees might be a better option long term. Know and compare all the details of your loans.
This applies to break fees. Do your research and compare the fees for leaving now vs later along with the savings you’d get now from changing lenders or products. You can discuss these fees and compare the potential savings with a broker.
If you decide to refinance yourself, ask lenders if they can remove the fees. You have more negotiation power with the lender you are moving to and while they might say no, it doesn’t hurt to ask.
The savings you can potentially make in most cases outweigh the upfront costs. To find out how much refinancing will cost you, talk to one of our brokers.