Why should you refinance your mortgage?
Bottom line: it’s about saving money – because you may access a lower interest rate.
It’s a competitive home loan market out there – and better options can be found.
A lower rate offers potential savings of thousands in interest repayments. The ACCC (Australian Competition and Consumer Commission) reports the average borrower could save $17,000 in interest just by switching to a new loan.
However, refinancing isn’t without effort – there are also some important decisions to be made.
Savings will depend on variables such as your mortgage, the years left on the loan term and the new interest rate compared to your current rate.
Unfortunately, you’ll also be factoring in the initial cost of refinancing. These can vary depending on the lender and the type of refinancing you’ve got in mind.
So all of this will take time and patience (not least because you’re going to be waiting a while between the application and documentation process).
What are the costs of refinancing a new loan?
As usual, things can vary when it comes to upfront costs – it depends ultimately on the lender.
When taking into account refinancing options, it’ll be important to calculate the total cost of changing as opposed to comparing individual fees between different lenders.
For example, in some instances, application fees might be waived – but higher ongoing fees will apply instead.
And there are a multitude of various fees out there – big and small.
Applicable fees may include:
- Application fees: which can reach upwards of $1000.
- Settlement fees: an administrative fee, costing around $365, charged by the new lender.
- Early repayment fees: some lenders apply a fee of between $100 and $1000.
- Fixed rate break fees: which can cost several thousand dollars, depending on the size of the loan.
- Lawyer fees: you can expect charges between $350 and $600.
- Mortgage registration: a state government fee charged when the incumbent lender deregisters a mortgage and the new lender registers a new one. This will vary from state to state between $220 and $350.
- Valuation fees: not generally charged for standard properties but can cost between $370 and $900.
- Lenders mortgage insurance: which applies if more than 80 per cent of a property’s value is borrowed. It can range from 1 to 4 percent of the loan amount depending on loan amount and LVR. Unfortunately this can often make it too expensive to refinance.
- Package fees. Some lenders require a package loan including discount insurance and credit cards. Fees vary, but major lenders impose an annual charge of about $400.
You should consider whether any long-term savings are worth the loss in loan features like offset account etc.
Remember – the cost of refinancing can change significantly based on the upfront costs on a new product. So it’s advisable to have done the sums to determine that the savings made via the new home loan are actually worth it.
But don’t stress, we can help.
If you are thinking about refinancing, please contact our experienced consultants immediately to find your best options.