There are many reasons homeowners might refinance their home loan. You might need funds for a home renovation, you’re considering investing in property or wanting to secure a lower interest rate or lower fees.
However, when thinking about home loan refinance, you should always think about the costs and fees that come with your decision.
What are the costs of refinancing a mortgage?
Loan application fee
The loan application fee is a one-off payment for the set-up of a new home loan which you’ll pay as part of refinancing. Also known as an ‘establishment’, ‘set-up’ or ‘start-up’ fee – you would’ve paid this when establishing your existing home loan.
Valuation fee
When you refinance, a lender will revalue your home just like it was when you first bought it. The fee covers the cost of this service, which uses a valuation professional. Sometimes, the valuation fee will be combined into the loan application fee.
Settlement fee
Settlement fees are costs incurred to ‘settle’ your new loan. It covers items like accounting, legal fees and other similar administrative expenses. It may also include the valuation fees mentioned above.
Discharge fees
This is different from the settlement fee. Your previous lender may charge you discharge or exit fees once they have agreed to end your previous home loan agreement as part of the refinancing process.
Exit fees
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. Your trusted mortgage broker Loan Station can help.
Lender’s mortgage insurance
Lender’s mortgage insurance (LMI) is generally 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.
Monthly administration fees on the new loan
Mortgage lenders may charge a monthly administration fee on your home loan refinance. The amount of this fee, or whether this fee is charged at all, may depend on the type of loan. Some lenders may instead charge an annual fee or a package fee.
Tips on avoiding refinancing fees
Try to negotiate with your current lender
Before exploring other lenders, consider reaching out to your current lender to negotiate better terms for your existing loan.
State your intention to refinance and ask if they can offer any rate cuts or fee waivers to retain your business. Some lenders may be willing to negotiate to keep you as a customer.
Do your research and compare lenders
Take the time to research different lenders and compare their fees and charges. Look for lenders that offer competitive rates and lower or no fees for refinancing.
Read the fine print and understand all the associated costs of refinancing a mortgage before making a decision.
Check for fee waivers or promotions
Some lenders may offer promotional deals or fee waivers for refinancing applications. Others may provide cashback offers.
Look for such offers and consider taking advantage of them when available. Read the terms and conditions carefully to ensure there are no hidden costs.
Maintain a good credit score
A strong credit score can help you negotiate better terms with lenders. By maintaining a good credit history, you demonstrate financial responsibility and reduce the risk for lenders, potentially leading to lower rates and lower fees.
To maintain a good credit score, ensure you pay your bills on time, keep your credit use low and avoid taking on unnecessary debt.
Get bundle or package deals from your lender
A bundle will typically include multiple financial products like home loans, credit cards and transaction accounts.
Bundling your services with one lender may result in discounted or waived fees, including refinancing fees. However, ensure that the bundled products and rates are competitive and suitable for your needs.
Use a loan comparison calculator
A loan comparison calculator compares home loan products and monthly repayments, calculating the total interest payable across the loan term.
This takes into account the amount you pay during the repayment period according to the lender’s terms. Introductory and ongoing interest rates are totalled to compare interest rates from your service provider
Can you afford to refinance your home loan?
Before making a decision, understand all associated costs and consider negotiating with your current lender. Research and compare lenders for the best rates and fees and be cautious of any hidden costs.
FAQs
When should I consider refinancing my home loan?
You might consider refinancing when interest rates have changed, your credit score has improved, you want to access home equity or you wish to consolidate debts.
Can I refinance if I have bad credit?
Refinancing with bad credit can be challenging, but it’s not impossible. You might have limited options and may face higher interest rates. Working on improving your credit score before refinancing can increase your chances of approval.
Should I use a mortgage broker to help with refinancing?
Mortgage brokers like Loan Station can be helpful in finding loan options from multiple lenders and negotiating on your behalf. They can save you time and potentially help you secure better terms.
