How much does it cost to refinance?

With so much movement on interest rates lately and roughly half of all fixed-rate loans expiring this year, refinancing is on many people’s radars.

It’s no wonder. Some of those facing their fixed rate expiry are bracing for a 63 percent increase in their monthly mortgage repayments.

If you fall into this category, you may be wondering how much it costs to refinance. Let us break down a few of the typical costs for you.

Costs to consider when refinancing

1. Mortgage application fee

If you’re switching lenders, you will likely have to pay a mortgage application or establishment fee. This covers the cost to your new lender of processing your application.

This upfront cost usually ranges from $200 to $1000, depending on the lender and the type of loan. It may or may not include a valuation fee.

2. Loan discharge fee

Saying farewell to your current lender will likely result in a discharge fee for the administrative costs associated with terminating your mortgage.

Often loan discharge fees are around $200-$400. However, they can be up to $1000.

3. Property valuation fee

Your new lender may require a valuation to be done when assessing your refinancing application. The cost largely depends on the lender and the location of the property – expect to pay more for rural properties.

Valuation fees may range from $200 to $600 in cities and $600 to $1000 in rural areas. Some lenders offer free property valuations.

4. Break fees

If you are on a fixed-rate loan, you may have to pay break fees to get out of it early. Break costs can be expensive and complicated to calculate. The easiest way to understand your break costs is to ask your current lender for a rundown.

5. Settlement fee

Remember paying a settlement fee when you originally took out your loan? You’ll be up for that again if you decide to refinance. Settlement fees are paid to the new lender to settle the loan and typically range from $100 to $400.

6. Mortgage registration fees

The land registry in your state or territory will charge a mortgage registration fee to register your mortgage on the title record for the property. The cost could be anywhere from $120 to $210.

7. Exit fees

If your existing loan was taken out before July 1, 2011, you may be up for early exit fees with your lender. Check with them directly.

How much refinancing can save you

While all of the costs mentioned above may seem overwhelming, it’s important to consider the long-term benefits of refinancing.

How much you could save by refinancing depends on the size of your mortgage, how many years you have left on the loan, how much lower the new interest rate is, and whether it has interest-saving features.

Refinancing example:

You’re an owner-occupier with $450,000 owing on your current loan. Your interest rate is 6.5% p.a. and you have 25 years left of your term.

If you switch to a loan with an interest rate of 5.1%, you could save up to $114,448 over the course of your loan.

Like to discuss your options?

As your finance broker, we can help you decide whether refinancing is the right move for you in the current economic climate. We can help you weigh up the costs versus the benefits of refinancing and explain whether a different loan could better suit your financial situation and goals. Please contact us for assistance.

The material on this website has been prepared for general information purposes only and not as specific advice to any particular person. Any advice contained on this website is General Advice and does not take into account any person's particular investment objectives, financial situation and particular needs. Before making an investment decision based on this advice you should consider, with or without the assistance of a securities adviser, whether it is appropriate to your particular investment needs, objectives and financial circumstances. In addition, the examples provided on this website are provided for illustrative purposes only. Although every effort has been made to verify the accuracy of the information contained on this website, Infocus, its officers, representatives, employees and agents disclaim all liability (except for any liability which by law cannot be excluded), for any error, inaccuracy in, or omission from the information contained in this website or any loss or damage suffered by any person directly or indirectly through relying on this information.

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