Refinancing a mortgage is a great way to reduce your monthly repayments, particularly in a time where inflation, rising interest rates, and supply chain shortages are increasing the cost of living. Many Australians are also coming to the end of ultra-low fixed interest rate periods (and are staring down the barrel of huge repayment increases), causing them to look elsewhere for cheaper finance options.
When it comes to refinancing a mortgage to reduce your repayments, the process may seem fairly straightforward: simply switch to a loan that offers a lower interest rate or better conditions.
However, when it comes to the actual implementation of a refinancing strategy, there are fees and charges that must be considered to ensure the whole refinancing exercise provides a net reduction in repayments. In other words, a refinance may not always be the best option for you.
In this article, I want to explore the basic ‘equation’ that must be satisfied to justfy an external mortgage refinance, and the most common fees and charges you may need to pay when terminating an existing loan and applying/settling a new one.
Do The Sums: When Is Refinancing Worth It?
A refinance will only be viable if the upfront fees and charges you are required to pay (to both the outgoing and incoming lender, and your local state government), and the resulting new interest rate or loan conditions leave you in a more desirable financial position.
In other words, if you’re refinancing to reduce your monthly repayments, you must be certain that paying all mandatory fees and charges, when mixed with your new interest rate, do not leave you worse off.
The cost of changing loans and/or lenders must not outweigh the benefits of refinancing. I’ve explained the most common fees and charges below.
What Are Some Of The Most Common Fees And Charges You Might Pay When Refinancing?
Listed below are some of the most common fees and charges you may be asked to pay when executing a mortgage refinance. Please note, some or all of these may not be applicable to you, and will depend on your unique situation, the policies of your outgoing and incoming lenders, and your state government’s policies.
Mortgage Application/Establishment Fee (Paid To Incoming/New Lender)
This fee is usually charged by your new/incoming lender to cover the administration costs of setting up the loan. There is no consistent or standard application fee amount, which means you must check with each lender before deciding to refinance with them. Of course, like all the fees and charges you ssee below, we can research this for you.
Valuation Fee (Paid To Incoming/New Lender)
Depending on how much equity you have in the property you’re refinancing, your incoming lender may conduct a valuation on the property to determine its market value. There is no consistent or standard valuation fee. The property’s location and the lender’s individual policies will determine how much you’ll need to pay for this. Some lenders do not charge for valuations.
Settlement Fee (Paid To Incoming/New Lender)
When the loan settles, your lender may send a legal representative to the settlement meeting on their behalf. Most lenders charge a settlement fee to cover the costs of this representation and other necessary paperwork.
Lender’s Mortgage Insurance (Paid To Incoming/New Lender)
You will probably be required to pay Lender’s Mortgage Insurance (“LMI”) if your loan-to-value-ratio is above 80%.
Unfortunately, LMI isn’t transferrable between lenders or loans. A new loan usually means you pay for a new LMI policy.
Break Fee (Paid To Outgoing/Old Lender)
A break fee is paid when you request to break the term on a fixed-rate home loan. Most lenders calculate their break fee using a combination of the period still remaining, the amount of your loan, and other discretionary factors. If your current loan is quite young, this may be a significant fee.
Discharge Fee (Paid To Outgoing/Old Lender)
A discharge fee is paid when you end a mortgage, and covers the administrative costs of closing the loan.
Legal Fees (Paid To Outgoing/Old Lender)
Depending on your lender and the nature of the loan, you may be required to pay additional legal fees incurred by the lender that fall beyond a standard settlement.
Exit Fee (Paid To Outgoing/Old Lender)
These are somewhat rarer nowadays, as government reforms prevent lenders from charging early exit fees on loans taken out after 2011. However, if your loan is older than this, you may need to open your wallet for this fee.
Mortgage Registration Fees (Paid To Local/State Government)
Depending on your state or territory, you may need to pay a local governing body to register your mortgage. This will ensure that the lender is paid back when you sell your home.
How To Get Your New Lender To Pay Your Fees
At the time of publishing this article, multiple lenders are offering very attractive rebates that, essentially, cover the cost of some (or all) of your refinancing fees and charges. Some of these rebates are so generous that you’ll end of up with cash left over.
This makes it even more attractive to refinance at the moment–so, if you’d like to chat about reducing your regular repayments via a mortgage refinance (and you want to hear more about these exciting, limited-time-only rebates), please reach out for a Free 30-Minute Finance Strategy Session.
Can We Help With Your Refinance?
If you’re looking for an expert team to help with your refinance (after all, you probably don’t feel like researching all of these fees), request a 30-Minute Finance Strategy Session during which you will…
- Discover how to unlock the equity in your current property/ies, so you can access the funds you need to consolidate
- Discover clever, no-cost ways to save money on interest, fees, and charges — immediately (beyond your debt consolidation goals)
Get an up-to-date picture of the lending landscape including rates and conditions - Learn about our process to find you more suitable loan conditions
This no-obligation session will be held with one of our experienced mortgage brokers.
Please be assured this will not be a thinly disguised sales presentation. On the contrary, you’ll receive our best strategic advice, specific to your situation, so you too can accumulate multiple properties without sacrificing your current lifestyle and accelerate your progress towards wealth.
Schedule Your FREE 30-Minute Finance Strategy Session Today
Please note, the numbers and assumptions listed in this article are for educational purposes only. Individuals should seek specific advice pertaining to their unique situation and the real estate market before making any decisions.
Trilogy Funding Two is a corporate credit representative (Representative Number 506131) of BLSSA Pty Ltd, ACN 117 651 760 (Australian Credit Licence 391237)
About the Author
Since 2008, David Thomas has built a business aimed at servicing the needs of property investors, owner occupiers and small business owners. David is recognised as one of the top 10 independent mortgage brokerages in the country, David and his team have settled almost billions of dollars worth of residential and investment loans over the last decade.
Known for his straightforward, relatable style, David believes by educating people about property funding; they fare better in the market. By sharing his expertise openly, some of the people he educates will likely become his clients. It's a win-win approach.
David Thomas is a credit representative (Representative Number 506153) of BLSSA Pty Ltd, ACN 117 651 760 (Australian Credit Licence 391237).