What are the costs to refinance?

Refinancing can be a great way to save money if you believe you are paying too much for your loan, but there is more to it than just finding a loan with a lower interest rate and making the change. Before making the switch, ensure the savings you could make outweigh the fees involved. Here are the different exit costs to consider:

Exit fee

As of 1 July 2011, loans are not subject to deferred establishment, or exit, fees, those taken out prior may still be but it is unlikely. The government mandated the removal of such fees also known as ‘early termination’ or ‘early discharge’ fees. Exit fees used to be in the order of $1000-$3000+. Exit fees are different to a mortgage discharge fee as explained below.

Mortgage discharge fee

This is to cover the settlement fees of the bank to discharge your loan and mortgage. Covering your early legal release from all mortgage obligations, this fee is not to be confused with an exit fee. Also known as a ‘settlement’ or ‘termination’ fee and in most cases costs between $300 and $500 depending on the lender.

Establishment fee

Also known as and application or set-up fees, these cover the lender’s cost of preparing the necessary documents for your new home loan. Most loans that have an annual fee (usually as part of a package) won’t have an establishment fee. Most Basic loans which no ongoing charges will charge and establishment fee.

Lender’s mortgage insurance (LMI)

Lenders Mortgage Insurance is the insurance that the home buyer pays to protect the lender in the case where the buyer defaults on their home loan. This, however, is usually only applicable when a home typically when a buyer borrows in excess of 80% of the purchase price. If you are looking to refinance and your LVR is above 80%, in most cases the LMI cost outweighs the economic benefit of refinancing to a lower rate.

Other government charges

These fees vary from state to state, these can potentially add up to $1000 or more. In WA, in most cases for properties under $500,000, the Landgate fees to discharge the mortgage will be circa $350. If there has been a recent name change, for example via a recent marriage, there will be another circa $178 charge.

Fixed Rate Break fee

One of the negatives of a fixed rate loan is that there may be significant costs (ie in the $1,000s) to break out of it. If you think you may sell the property prior to the fixed rate period ending or think you may change products or lenders we do not recommend the fixed rate product.

The costs depends on a combination of a) the loan size b) the fixed rate c) the current interest rate. In most cases if your fixed rate is lower than current interest rates, then there will be no Break Fee.

Although some of these fees can be negotiated by a broker, the total cost can be substantial. Make sure you give Orange Mortgage and Finance Brokers a call. We will calculate and detail all the applicable costs to you to figure out if refinancing makes economic sense.