Switching home loans? Hidden costs of transferring to another bank

Refinancing your home loan could save you thousands of dollars in the long term, but it pays to be mindful of the hidden costs of switching your mortgage.

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When switching mortgage to another bank, known as refinancing your home loan, you can make significant savings on the interest rate and fees, giving you cheaper home loan repayments each month. But before you make the switch, you need to make sure you're aware of the costs involved.

While you may have found a new lender with a cheaper interest rate, lower ongoing fees, or better features compared to your current mortgage, refinancing can have a few hidden costs in the process. Here's how to make sure you're actually moving to a better deal.

Common costs of switching mortgages

  • 1. Lenders mortgage insurance (LMI).
    If you refinance and the amount you owe on your property is more than 80% of its total value, you'll have to pay lenders mortgage insurance. LMI is likely to be the biggest cost of refinancing, as it can be thousands of dollars - but on the plus side, you can usually add it to the loan, so you don't have to dig into your savings to pay it. Ask your bank or mortgage broker for an upfront valuation before proceeding with your refinance application, to make sure your LVR is 80% or less.
  • 2. Mortgage discharge fees.
    Check your loan agreement to see if your lender charges a discharge fee when you close your home loan account. This could range from $150-$500. There are also government charges to end a loan contract, so expect to pay up to $1,000 in total to close your current loan agreement.
  • 3. Break costs on fixed rate loans.
    When you break a fixed-term loan, your financial institution will charge you a fee for not fulfilling the agreed terms. The amount you pay is based on how much money/profit the banks stands to lose by you ending the fixed-rate loan contract. It will vary according to the interest rate your fixed loan was secured under, the current interest rate and the duration of your loan. This fee can be thousands, or even tens of thousands of dollars.
  • 4. Switching fees.
    This is a fee you may have to pay when refinancing internally (staying with your current lender but switching to a different mortgage product). You can pay a switching fee of between $250-$650 to 'switch' loan products. It's always worth asking your lender if they're willing to negotiate on this.
  • 5. Direct debits.
    One of the biggest frustrations when switching lenders can be reorganising any direct debits from your nominated account. If not done well, you could be hit with “over the limit” and payment dishonour fees. These are usually $10-$25 each.
  • 6. New application fees.
    Your new mortgage may incur upfront application fees and mortgage registration fees. Application fees typically range from $400 to $750 (sometimes your new lender may waive this fee altogether) and mortgage registration varies per state, but they can be as low as $100.

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How long does it take to refinance?

Not as long as you might think! Our own Kate Browne did an experiment to see how long the entire process takes, from beginning to end. Turns out, it was the quickest money she ever made.

Refinancing costs estimate

To give you a clearer example of the costs above, we've broken down an example estimate of the fees you may face when refinancing your mortgage. Note that these fees can vary from one lender to another.

Expense typeCost
Discharge fees$100-$200
Mortgage deregistration fee$120 (varies according to state)
Mortgage registration fees$120 (varies according to state)
Application fee$500
Settlement fee$75
Bank valuation fee$220
Title search fee$30
Preparation of mortgage documents$100
Total refinancing costs:$1,325

You can also use our calculator below to estimate your total switching costs.

Sometimes, the fees and charges involved in switching your home loan can work out to be more than you stand to save.

For instance, if you've found a lower interest rate home loan and you are set to save $500 per year in home loan repayments by switching, but it's going to cost you $1,500 in fees to refinance, then it may not be worth making the move.

Make sure you understand all the costs involved before you refinance. If you get a low-rate home loan with a cashback offer (often $2,000-$4,000), this might make the cost of refinancing far more attractive.

If you're interested in switching to a cheaper or better home loan, then start comparing your options in the table below.

Refinancing Home Loan Comparison

$
% p.a.
years
Name Product Interest Rate (p.a.) Comp. Rate (p.a.) Amount Saved

UBank UHomeLoan Fixed P&IHome 1Y Fixed≥ 20% Equity

UBank UHomeLoan Fixed
1.79%
2.18%
$63,833
Fix your mortgage for 1 year with a very competitive rate and no ongoing fees.

HSBC Home Value Loan P&IHome≥ 30% Equity

HSBC Home Value Loan
1.97%
1.98%
$59,019
$3,288 refinance cashback offer
This competitive variable rate loan is available for borrowers with 30% deposits. Eligible refinancers borrowing $250,000 or more can get a $3,288 cashback. Terms and conditions apply.

loans.com.au Smart Booster Discount Variable Home Loan P&IHome≥ 20% Equity

loans.com.au Smart Booster Discount Variable Home Loan
1.85%
2.21%
$61,558
Get a low discounted variable rate loan. Requires a 20% deposit. Get your loan processed fast and settle within 30 days.

Macquarie Bank Basic Home Loan P&IHome≥ 40% Equity

Macquarie Bank Basic Home Loan
2.14%
2.14%
$54,409
Apply for the Macquarie Bank Basic Home Loan - LVR ≤ 60% (Owner Occupier, P&I) and get a low variable interest rate, plus no application and ongoing fees. Requires a 40% deposit.

Athena Variable Home Loan P&IHome≥ 40% Equity

Athena Variable Home  Loan
1.89%
1.89%
$61,168
Owner occupiers with 40% deposits or equity can get this competitive variable rate loan. No upfront or ongoing fees.

IMB Fixed Rate Home Loan P&IHome 2Y Fixed≥ 20% Equity

IMB Fixed Rate Home Loan
2.07%
2.65%
$55,241
A 2 years fixed with the competitive features.

Nano Variable Home Loans P&IHome≥ 25% Equity Refi Only

Nano Variable Home Loans
1.99%
1.99%
$58,480
Competitive rate with zero fees, fast approval and a 100% free offset account. Refinance only, 25% deposit required.

Well Home Loans Equity Plus P&IHome≥ 40% Equity

Well Home Loans Equity Plus
1.82%
1.85%
$62,516
Borrowers with 40% deposits or equity can get this low variable rate loan. 100% offset account included.

OneTwo Variable Rate Home Loan P&IHome≥ 20% Equity Refi Only

OneTwo Variable Rate Home Loan
1.99%
1.89%
$58,480
A low variable rate loan for owner-occupier refinancers living in metro NSW/VIC. Get rate discounts as you repay the loan.

Yard Variable Home Loan P&IHome≥ 20% Equity

Yard Variable Home Loan
1.99%
2.02%
$57,440
A very low variable rate loan for home buyers with an optional offset account ($120 annual fee). 20% deposit required.

86 400 Own Home Loan Fixed P&IHome 1Y Fixed≥ 20% Equity

86 400 Own Home Loan Fixed
1.94%
2.55%
$58,917
Fix to this very competitive rate for one year. This loan requires a 20% deposit.

Bluestone Prime Home Loan P&IHome≥ 30% Equity

Bluestone Prime Home Loan
2.23%
2.25%
$51,229
Bluestone's Prime is a competitive variable rate home loan for borrowers with 30% deposits.

loans.com.au Smart Booster Discount Variable Home Loan P&IHome≥ 20% Equity

loans.com.au Smart Booster Discount Variable Home Loan
1.99%
2.47%
$57,789
Home buyers can get a very low discounted variable rate for the first year. Requires a 20% deposit. Add an offset sub-account for an additional 0.10% on your interest rate. Get your loan processed fast and settle within 30 days.

ME Flexible Home Loan Fixed with Members Package P&IHome 2Y Fixed≥ 20% Equity

ME Flexible Home Loan Fixed with Members Package
2.29%
3%
$49,617
$3,000 cashback when refinancing a loan of $250,000 or more. Other conditions apply. Lock in a competitive rate for owner occupiers for two years. Comes with a 100% offset account.

Well Home Loans Balanced Fixed Home Loan P&IHome 1Y Fixed≥ 10% Equity

Well Home Loans Balanced Fixed Home Loan
1.99%
1.90%
$57,636
Owner occupiers can get a sharp fixed rate for the first year, plus an offset account. Available with a 10% deposit.
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2 Responses

    Default Gravatar
    KarenJanuary 21, 2017

    Currently have $275000 mortgage with Bankwest interest rate is 5.3%
    Morgage house offering 3.49%
    Is it worth changing loans what will my discharge fee be with Bankwest

      Avatarfinder Customer Care
      DeeJanuary 23, 2017Staff

      Hi Karen,

      Thanks for your question.

      While I can’t answer if changing your lender is indeed the best option for you, our home refinancing guide can help you make the right decision. On the same page, we have also listed the true cost of refinancing as well as your refinancing options.

      Before refinancing, you may want to get in touch first with Bankwest and see if you can negotiate a lower rate. They are also able to compute the discharge fee of your loan in case you want to refinance.

      Cheers,
      Anndy

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