The hidden costs of transferring a home loan 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 you refinance your home loan to a new lender, it can lead to significant interest savings and cheaper home loan repayments each month. But before you make the switch, you need to ensure you're fully aware of the costs involved.
While you may have found a new lender with a cheaper interest rate, lower ongoing costs or better features compared to your current mortgage, refinancing can be a costly process. Before you transfer your home loan, do your research to make sure you're actually moving to a better deal.
The 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. If not, you could potentially be adding a significant amount of money to the cost of your loan. Ask your bank or mortgage broker for an upfront valuation before proceeding with your refinance application to ensure that your current valuation is on track.
- 2. Mortgage Discharge Fees. Don’t confuse these with exit 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. With government charges, expect to pay around $1,000 in total. It's always worth talking to your lender to ask for cost reductions when discharging your mortgage.
- 3. Break Costs on Fixed Rate Loans. When you break a fixed-term loan, your financial institution will charge you for not fulfilling the agreed terms. The amount you pay will vary according to the interest rate your fixed loan was secured under, the current interest rate and the duration of your loan. Charges can often run in the thousands if poorly managed.
- 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).
- 5. Direct Debits. One of the biggest difficulties in switching lenders is managing direct debits from your nominated account. If not done well, you could be hit for “over the limit” and cheque dishonor fees. It can be time-consuming to not only change your main account and mortgage, but also update details with other institutions that access your accounts for regular payments.
- 6. New Application Fees. Your new mortgage will incur upfront application fees and mortgage registration fees which you need to take into account. Application fees typically range from $400 to $750 and mortgage registration varies per state, but they can be as low as $100. Some banks may waive this fee altogether.
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 some of these fees can vary from one lender to another.
|Mortgage deregistration fee||$120 (varies according to state)|
|Mortgage registration fees||$120 (varies according to state)|
|Bank valuation fee||$220|
|Title search fee||$30|
|Preparation of mortgage documents||$100|
|Total refinancing costs:||$1,325|
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
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Home Loan OffersImportant Information*
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.
Up to $4,000 refinance cashback. With this competitive variable rate loan from St.George, refinancers borrowing $250,000+ can get up $4,000 cashback and borrow up to 90% of the property's value. (Terms, conditions & exclusions apply).
A competitive variable rate mortgage for owner occupiers $0 application and $0 ongoing fees. This interest rate falls over time as you pay off the loan.
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