July 25, 2018 by Jessica Halcrow
Here we explore what potential costs you may be up for when looking to refinance your mortgage. The reality is better than you may think!
One major reason that people look to refinance their home loan is to save money - either by reducing the interest they're charged, or minimising their home loan repayments - or both.
Refinancing can be a great way to save on your mortgage, though there are a number of fees and charges that you should be aware of, which might outweigh the savings if you don’t know how to negotiate or avoid them. While that low home loan rate may not be as great as it looks in the advertising, there are always ways to come out on top.
Here, we’ve gathered together the common fees and costs that you could come across when refinancing and provided explanations for each.
Fees associated with refinancing
While you can always avoid the hassle, and consult with a home loan expert like our mortgage brokers at Pacific Fair in Broadbeach to guide you through these costs, it’s always a good idea to be prepared.
What are these fees and why are they charged? Here are the top costs and fees that you may come across when refinancing – but don’t forget, our team of mortgage brokers can often negotiate these costs down or away entirely for you as part of their no-cost home loan service.
Application fees for home loans
Low interest rates on an advertised loan product may look attractive, however it pays to check what fees you may have to pay initially for establishing that home loan – these costs are called ‘application fees’. Other upfront fees are worth looking out for as well, which lenders sometimes list by other names and are under other terms, such as ‘document preparation fees’. An experienced mortgage broker, like ours at Mortgage Choice in Pacific Fair, can often assist you to avoid these fees due to our knowledge and relationships with the banks and lenders. These costs can be sneaky and you may not realise you need to pay them in order to access that fantastic low rate.
Mortgage exit fees
If you are looking to get out of your current mortgage, your lender may charge you a ‘discharge fee’ or exit fee. Exit fees vary from lender to lender, so you can check with your current lender – on their website or in your loan documents. Or even better, just ask your Pacific Fair mortgage broker, who can find out what discharge fee you may need to pay to get out of your current mortgage.
Legal and Settlement fees
These fees are associated with the costs of paying out your lender for your previous mortgage, and then to switch your funds to the new mortgage. What’s great is that these legal costs can also often be negotiated and waived by the bank or lender. As always, using an experienced mortgage broker can take you out of these tougher negotiations so you don’t have to worry.
Valuation fee
Refinancing to a new lender means that the lender will need to conduct their own bank valuation on your property. Valuations generally cost a few hundred dollars, however your Mortgage Choice brokers in Pacific Fair can waive these fees for you at no cost as part of their home loan service.
Monthly account fees
Some mortgages come with monthly account-keeping fees, sometimes also called ‘documentation fees’, which can add up over time – especially over the course of a 15 or 30-year home loan. Even if the account-keeping fee is $5 or $10 each month, you should make sure that the savings of refinancing to a new lower rate isn’t out-weighed by these fees over time. Your mortgage broker can also assist in negotiating these fees on your behalf.
Other fees you should be aware of
Government fees when refinancing
Government fees vary by state, however the two general types of these fees required to be paid when refinancing a home loan are mortgage registration and mortgage deregistration. The cost for these fees are generally around $100 to $200, but can change each year.
Break costs when refinancing
If you’re looking to switch from a fixed rate home loan over to a more appealing variable rate, then you could be required to pay ‘break costs’. In order to cover a lender or bank for any potential losses by you exiting your fixed term contract earlier than your original agreed term duration, break costs are implemented. While your bank can provide you with a current payout figure based on where you’re at in the life of your contract, why not ask your mortgage broker about these fees. Your Mortgage Choice broker at Pacific Fair will be able to let you know the finer details and if you can avoid these costs.
Lenders Mortgage Insurance (LMI)
Lastly, if you don’t have enough equity in your property when you go to refinance to a different loan product, then you may need to pay Lenders Mortgage Insurance, or LMI. Having to pay LMI when you refinance may seem unfair - you have already purchased and are paying a home loan on a property. However, it’s quite common that you would need to pay LMI if the equity in your house is less than 20% of the property value. This protects the lender against mortgage default. By using our mortgage brokers at Pacific Fair in Broadbeach, we can give you a number of strategies to avoid having to pay LMI when you refinance.
So is refinancing worth it?
Over the long term you could save hundreds if not thousands of dollars by refinancing, so if there’s a chance that you avoid these fees and costs by speaking to an expert, it could be worth your while. It’s important to do your research on the fees and costs of refinancing and decide if these costs will justify switching to a different rate or lender or both.
Saving yourself time and the effort of researching these various fees and costs and how they impact you is a great reason to speak to an expert mortgage broker. Our team at Mortgage Choice in Pacific Fair can help you decide if refinancing is right choice for you.
Contact our home loan experts in Pacific Fair, Gold Coast for a free review of your current home loan – a home loan health check. Call us on 07 5676 6433, or click 'Contact us' at the top of the screen today.
