Know the costs of refinancing your mortgage to get the most out of switching
Although refinancing to a new lender can lead to significant cost savings, you need to ensure that you're fully aware of the costs involved.
While you may have found a new lender with a more competitive rate, minimal ongoing costs or better features compared to your existing mortgage, refinancing can be an expensive process if you're not well versed in the costs and process.
'If you’ve already changed banks or you’re considering doing so, make sure you’re aware the hidden costs of switching, even with the recent reduction in mortgage discharge fees,’ says The Investors Club, a leading national property investment group.
According to the Investors Club these are the seven hidden costs you should know about before switching mortgages.
The 6 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 planned, you may be required to pay mortgage insurance. To avoid this, your new property valuation must be higher than 80% of the loan amount. If not, you could potentially be adding 2% to the cost of your loan. Ask your 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. 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 look 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. 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.
5. 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, starting at $100 to $140.
6. Stamp Duty
You may be liable to pay stamp duty when refinancing. Expect to pay around 0.35 per cent of the loan value plus GST. To get an estimate you can use our stamp duty calculator.
Understanding mortgage refinance costs could save you thousands when you decide to switch lenders. Use our calculator below to estimate your total switching costs.
Use our calculator below to estimate your total switching costs.
Refinancing Home Loan Comparison
Rates last updated April 29th, 2017.
- IMB Essential Home Loan - LVR <=90% (Owner Occupier)
Comparative rate increases by 0.10% | Interest rate increases by 0.10%
April 5th, 2017
- Newcastle Permanent Building Society Premium Plus Package Home Loan - New Customer Offer ($150,000+ Owner Occupier, P&I)
Interest rate increases by 0.10%
April 10th, 2017
- Newcastle Permanent Building Society Fixed Rate Home Loan - 3 Year Fixed (Owner Occupier Special Rate, P&I)
Interest rate is now 3.99%
April 24th, 2017