If you’re thinking about whether or not it’s time to refinance your home mortgage, it’s important to know that there are costs involved in the process.
There are some fees that lenders can add onto the mortgage refinancing process. Most of the individual costs, how much they are and whether they’re charged at all will depend on the lender.
There are many motivating factors for home owners to consider refinancing their mortgage. The potential of realising a lower interest rate is chief among them. A lower rate can save you thousands of dollars of interest every year and hundreds of thousands over the life of your loan.
Refinancing requires some research. How much you might save will depend on, among other things, the size of your mortgage, how many years are left on your loan term and how much lower your new interest rate is.
Refinancing is rarely free. Any possible savings should be considered in comparison to the refinance cost to determine whether or not refinancing could be beneficial.
Here are some of the typical upfront refinance costs you may come across.
1. Mortgage application fee
If you’re wanting to refinance with a different lender you may need to pay an application fee, also known as an establishment or upfront fee.
This is a one-off payment taken to set up the new home loan and will cover the administration costs incurred by the lender.
Sometimes, a lender will include any costs associated with valuing a borrower’s property in their application fee.
2. Property valuation fee
Depending on how much equity you have in your property, a new lender may ask to conduct a valuation before you’re approved to refinance.
Equity is the difference between the market value of your property and the amount you still owe on your mortgage. For example, if your home is valued at $600,000 and you still owe $400,000 on your mortgage, your equity is $200,000.
How much a valuation fee can end up costing will vary depending on the lender, property and location. For example, it tends to cost more to get rural properties valued compared to those in urban areas, due to a greater travel time.
There are lenders that don’t charge a valuation fee or tie it into their application fee.
3. Discharge fee for termination of mortgage
A mortgage discharge fee, also known as a termination fee, is generally applicable to refinancing with another lender and charged by your existing lender. Your lender might require you to pay a discharge fee to cover the administrative costs it incurs when ending a loan contract.
4. Break cost
If you currently have a fixed-rate home loan and you want to refinance before the end of your fixed loan term, you’ll probably have to pay a break fee.
This covers any potential losses your current lender might face because your agreement ended before it was scheduled to.
Break costs can be complicated to calculate because they depend on how much a lender is out of pocket. It’s worth contacting Sydney mortgage broker Loan Station for expert advice.
5. Settlement fee / legal fees
Settlement fees may be charged by the lender or the lender’s solicitor for the administrative work involved in finalising the refinancing process.
6. Mortgage registration fees
A mortgage registration fee is charged by state and territory governments for mortgages to be added to a register. This prevents you from selling the property without paying back the lender.
7. Exit fees
Following government reforms, lenders have been banned from charging early exit fees on loans taken out after July 1, 2011. However, loans taken out before this date may still incur exit fees. You’ll need to check the terms of your existing loan to find out if an exit fee applies to you.
8. Stamp duty
If refinancing your mortgage involves changing the name on the property title or transferring ownership, stamp duty may be payable to the state or territory government. The stamp duty amount can vary depending on the value of the property and the state or territory where it’s located.
Final thoughts
While refinancing your mortgage can offer significant long-term benefits such as potentially saving thousands of dollars in interest payments, it’s wise to be aware of the various costs involved in the process. From application fees to break costs, there are several expenses that may emerge during refinancing.
However, these costs shouldn’t deter you from exploring the option of refinancing. Instead, they should be carefully weighed against the potential savings to determine whether refinancing is the right choice for you.
FAQs
How much does it usually cost to refinance?
When you refinance, you may have to pay between a few hundred to a few thousand dollars.
How much is the interest rate for refinancing?
There isn’t a single answer because interest rates to refinance home mortgages are constantly changing based on various factors like the lender, loan product, loan amount, borrower creditworthiness and the overall market conditions.
Consulting a mortgage broker like Loan Station is a good option. We can access rates from multiple lenders and find options that suit your specific financial situation.
How much is a valuation fee for a refinance?
The cost of a valuation fee can end up costing varies between lenders, properties and locations.On average, it can cost a few hundred dollars in cities and slightly more in rural areas.
What is the discharge fee for refinancing?
The discharge fee varies depending on the lender and the loan type. On average, it can cost a few hundred dollars.
