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). When you switch financial institutions, the new lender may require a new property valuation. If your new valuation is lower than expected, you may be required to pay lenders mortgage insurance. To avoid this, your loan amount must not be higher than 80% of the new valuation (meaning you have a deposit or equity of at least 20%). If not, you could potentially be adding a significant amount of money to the cost of your loan, as LMI can be thousands of dollars. Ask your bank or mortgage broker for an upfront valuation before proceeding with your refinance application, to ensure that your LVR is 80% or below.
  • 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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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^ Application Fee Ongoing Fees Maximum Insured LVR Amount Saved
St.George Fixed Rate Advantage Package
1.94%
3.40%
$0
$395 p.a.
80%
$59,299.05
Up to $4,000 refinance cashback
Borrowers with 20% deposits or equity can get this competitive fixed rate loan. Refinancers borrowing $250,000 or more can get up to $4,000 cashback (Other terms, conditions and exclusions apply).
UBank UHomeLoan Fixed
1.75%
2.31%
$0
$0 p.a.
80%
$64,892.81
Limited time offer.
Fix your mortgage for 1 year with a very competitive rate and no ongoing fees. Apply by 30 June 2021 and settle within 90 days to get this low rate.
Westpac Fixed Option Home Loan Premier Advantage Package
1.99%
3.48%
$0
$395 p.a.
95%
$58,084.66
Up to $3,000 refinance cashback.
Lock in a low fixed rate for 2 years and buy your home with a 5% deposit. Eligible borrowers refinancing $250,000 or more can get up to $3,000 cashback. Other conditions apply.
Athena Variable Home  Loan
1.99%
1.99%
$0
$0 p.a.
60%
$58,479.66
Owner occupiers with 40% deposits or equity can get this competitive variable rate loan. No upfront or ongoing fees.
HSBC Fixed Rate Home Loan Package
1.88%
2.86%
$0
$390 p.a.
80%
$61,044.54
$3,288 refinance cashback offer
Lock in a low fixed rate for 2 years and buy your home with a 20% deposit. Eligible refinancers borrowing $250,000 or more can get a $3,288 cashback. Terms and conditions apply.
Australian Unity Health, Wealth and Happiness Package Fixed Home Loan
1.89%
2.77%
$0
$399 p.a.
70%
$60,768.02
Up to $2,000 cashback.
With a 30% deposit or equity, get access to an 0.10% rate cut and big discounts on credit cards and health insurance. You may qualify for up to $2,000 cashback (Terms, conditions and exclusions apply).
loans.com.au Smart Booster Discount Variable Home Loan
1.85%
2.21%
$0
$0 p.a.
70%
$61,557.88
Get a low discounted variable rate loan. Requires a 30% deposit. Get your loan processed fast and settle within 30 days.
Suncorp Home Package Plus Fixed
1.89%
2.85%
$0
$375 p.a.
80%
$60,792.02
Lock in a low fixed rate for 2 years. Available with a 20% deposit. Eligible new borrowers can get the annual package fee reimbursed for the life of the loan.
Greater Bank Great Rate Fixed Home Loan
1.69%
3.49%
$0
$0 p.a.
110%
$66,246.88
Get one of the lowest rates on the market with this fixed rate mortgage. NSW, QLD and ACT residents only.
Mortgage House Lifestyle First Refinancer Special Home Loan
1.94%
1.98%
$0
$0 p.a.
80%
$59,238.68
This loan offers owner-occupiers a low interest rate and minimal upfront fees. Requires a 20% deposit.
HSBC Home Value Loan
2.19%
2.20%
$0
$0 p.a.
70%
$53,040.06
$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.
Homestar Star Gold
1.79%
1.84%
$395
$0 p.a.
60%
$62,655.41
Refinancers and buyers with 40% deposits can get this very competitive variable rate. It even comes with a 100% offset account.
Westpac Flexi First Option Home Loan
2.29%
2.72%
$0
$8 p.a.
95%
$50,287.27
Up to $3,000 refinance cashback.
A flexible and competitive variable rate loan. Eligible borrowers refinancing $250,000 or more can get $2,000 cashback per property plus a bonus $1,000 for their first application. Other conditions apply.
Australian Unity Health, Wealth and Happiness Package Fixed Home Loan
1.99%
2.91%
$0
$399 p.a.
80%
$58,080.66
Up to $2,000 cashback.
Borrowers with min. 20% deposits or equity are eligible for this ultra-low rate loan, packed with features. You may qualify for up to $2,000 cashback (Terms, conditions and exclusions apply).
Well Home Loans Balanced Fixed Home Loan
1.89%
2.18%
$250
$0 p.a.
90%
$60,334.6
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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