Are you still saying “YOLO” out loud? Or going to the hairdresser with a photo of Jennifer Aniston’s ‘Rachel’ cut? Sometimes, what’s worked for you before isn’t exactly what you need now.
Refinancing your home loan can be a great way to blow out the choppy layers. You’ll get a lower monthly payment with a market-appropriate interest rate and the opportunity to choose a product that might better suit your lifestyle.
However, the cost of refinancing a home loan can outweigh the benefits. Fees, loan terms and hidden costs can add up in the long term.
So, how much does it cost to refinance a home loan?
Loan application fees
When you refinance, you take out a whole new loan. If your lender charges loan application fees, you’ll be stung with them a second time around.
ME Bank offers home loans with zero application fees, which could save you several hundred dollars when you refinance.
Property valuation for refinancing
To get an accurate picture of your equity, a new lender may need to do a valuation of your property.
Think of it as the judging portion of an episode of a home renovation show. Some lenders may include the valuation fee in your application; however, costs may vary.
Learn more about home valuations here.
Settlement fee
This is typically used to cover the cost of having a legal representative of the lender sit down with you and your solicitor or conveyancer at the actual loan settlement.
Mortgage Registration Fee
This is the cost of switching your existing mortgage from your current lender to a new mortgage with a new lender.
Ongoing fees
A low refinance rate could mask high ongoing fees. Be sure to look at exactly what the refinanced home loan will cost you on a regular basis, including any ongoing fees, fixed rate periods or introductory offers. ME home loans can help you save here too, with no ongoing account keeping fees.
Use our Loan Comparison Calculator to get the numbers crunching.
Seeing the options side by side will help you choose a product that really delivers the best value.
Your new mortgage payment
Switching to a new, lower rate is obviously appealing, but like chocolate-covered cheese, it might be better in theory. What is the term of your new loan? If you’ve already paid five years’ worth of interest, is it a good idea to start again with a new 25-year term?
Make sure you have a plan before you refinance. A low rate might be ideal if you’re planning to pay out quickly, but extending the life of your mortgage could cost more in the long run.
Our refinancing calculator can help you see exactly how much you’ll be paying over the life of your loan.
Lenders Mortgage Insurance (LMI)
Lenders Mortgage Insurance (LMI) will apply to your home loan if the loan-to-value (LVR) ratio is over 80 per cent. When refinancing your home loan, you may need to pay LMI to your new lender.
Loan discharge fees
A refinancing loan works by paying out your existing mortgage. Depending on the type of loan you’ve got, you may be stuck with a chunk of cash still to pay.
Variable rate loans often come with minor administrative costs when paying out early but fixed rate loans can be different. If the market has shifted in your favour since you first fixed, you could be up for ‘break costs’ – a way for a lender to recoup the difference.
You’ll need to ask your current lender exactly what this cost might be for you.
Non-fee refinancing costs
You may come across all sorts of rules of thumb that determine whether it’s a good idea to refinance. Some people suggest looking at how long it will take for the costs of refinancing to be balanced out by savings on the new loan. Others follow benchmarks like the size of any rate saving you could secure.
What’s often overlooked is a simple litmus test: does the new loan offer features you don’t have right now? Paying off your loan sooner is the best chance you have to save money. There’s a whole range of features that can help you do just that.
So, how much does home loan refinancing cost? It depends on what you have already and the new loan you’re choosing. If you weigh up each cost and compare it to your current loan, you can make sure you’re getting the best possible deal.
Now that you know the costs of refinancing a home loan, to find out if it is the right move for you, consider your goals and crunch some numbers with our refinance calculator.
Easier still, talk to your ME Mobile Bank Manager.
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Solicitor, valuation and agent fees may apply. Terms, conditions, fees and charges apply. Applications are subject to credit approval.
This article is prepared based on general information. It does not take into account individual financial objectives or needs and is not financial product advice.