How Much Does it Cost to Refinance Home Loan?

Refinancing a home loan in Australia has become increasingly popular among homeowners. Many are considering refinancing to achieve lower monthly repayments or access additional funds for renovations or investments. However, it’s crucial for borrowers to understand the costs associated with refinancing to decide whether it is worthwhile.

Breakdown of Refinancing Costs

Refinancing involves replacing an existing home loan with a new one, typically with a different lender or under different terms. The primary goal is often to secure a lower interest rate, reduce monthly payments, or access equity built up in the property. However, refinancing is not merely a matter of switching loans; it incurs several costs that borrowers must consider.

The total cost of refinancing a home loan in Australia will vary depending on the lender and specific circumstances, but it generally ranges between $500 and $1,500. Key costs associated with refinancing include:

1. Discharge Fees: Your current lender may charge a discharge fee for closing your existing loan, which typically ranges from $150 to $400.
2. Application Fees: Some new lenders may charge an application or establishment fee for setting up the new loan. These fees are usually between $200 and $600.
3. Valuation Fees: The new lender may require a property valuation, costing around $200 to $400.
4. Government Fees: In some cases, you may need to pay government fees, such as registration of mortgage fees, which vary by state but are usually around $100 to $200.
5. Lenders Mortgage Insurance (LMI): If your LVR is above 80%, you will be required to pay LMI, which can be a significant cost depending on the size of the loan.

While these are the main fees to consider, some lenders offer incentives like cashback offers that can offset or even cover these costs, making refinancing more attractive. Always consult a mortgage broker who will help you to compare lenders and calculate the overall savings before proceeding.

Other Considerations when Refinancing

The terms of the new loan play a crucial role in the overall cost of refinancing. For example, extending the loan term may lower monthly repayments but could result in paying more interest over the life of the loan. Conversely, shortening the term could lead to higher monthly payments but less overall interest. Therefore, borrowers should carefully weigh their options and consider how the terms of the refinance will affect their long-term financial situation.

Should I Refinance My Home Loan?

When considering refinancing, it is essential to evaluate whether the costs associated with it outweigh the potential benefits. Homeowners should assess their financial goals, such as reducing monthly repayments or accessing additional equity for renovations or investments. Conducting a detailed analysis can help borrowers understand how long it will take to recoup the costs through savings in monthly repayments.

Using tools such as refinancing calculators can assist homeowners in estimating their potential savings and comparing different loan options. Consulting with an experienced refinancing mortgage broker is useful, as they can provide guidance in the refinancing process, as well as negotiate the lowest interest rates and waive fees where possible. 

Conclusion

Understanding the costs associated with refinancing home loans is crucial for homeowners seeking to optimise their financial arrangements. While refinancing can offer numerous benefits, including lower interest rates and reduced monthly payments, it also comes with various costs that must be carefully considered. Homeowners should conduct thorough research and seek professional advice to ensure that refinancing aligns with their financial goals and circumstances. Get in touch with a mortgage broker from EE MOrtgages today by filling out the form below.