With interest rates falling, it’s important to understand what costs are involved when refinancing to a new lender.
Refinancing to a new lender should enable you to achieve greater savings, structure and flexibility that is tailored to your individual scenario. But, switching lenders comes with a cost, and ensuring that cost is offset by the benefits you should receive, is where a skilled Mortgage Broker can assist.
Most lenders will charge a ‘discharge’ fee to cover the legal and administration costs associated with closing a mortgage and releasing the title deed. This could also be known as a ‘termination’ or ‘settlement’ fee.
You could also be required to pay a 'discharge registration' fee to the Land Titles Office to register the release of your current mortgage.
Fixed Rate ‘Break’ Costs
If your current loan is within a fixed rate period, some lenders may charge you a ‘break cost’ when you refinance to a new lender or switch to a different product.
This cost could factor in how much interest would accrue over the remaining fixed rate period, along with legal and administration costs. It’s important to enquire with your lender what this cost may be.
A new lender could include a once-off fee when you start your new home loan, typically to cover their cost of processing a home loan application. This could also be referred to as a ‘start-up’, ‘set-up’ or ‘up-front’ fee.
Some lending products can come with different monthly or annual fees. Commonly a lender will charge an annual or monthly fee to receive a home loan package with offset account or credit card. Some lenders may charge additional fees for an offset account, redraw, a fixed rate etc.
A valuation on your property is required to establish the market value of your home, and resulting equity held. Depending on what type of valuation is required, a lender could charge you a fee to cover this cost to them.
Lender's Mortgage Insurance (LMI)
Any borrowings greater than 80% of your home’s value could require you to pay Lender’s Mortgage Insurance (LMI). This is an insurance premium which protects your lender in the event that you can no longer make your home loan repayments.
The more you borrow above 80% of your home’s value, the higher the percentage of LMI payable will increase by. Usually LMI is charged as a once-off premium, which could be added onto your loan.
Mortgage Registration Fee
Refinancing to a new lender may require you to pay an upfront mortgage registration fee to the Land Titles Office to register your new mortgage with your new lender. These fees can differ, depending on your State or Territory.
It’s also important to understand that in a market with tighter lending requirements, what you were approved for in the past, may no longer apply today.
So whilst there are great interest rates to chase, using the service of a qualified Mortgage Broker to identify all the costs associated with refinancing is more important than ever before. To speak to a Bernie Lewis Mortgage Broker to check your home loan, simply call 8300 8300.
The information provided in this article is general in nature and does not take into account your personal circumstances. Since everyone's personal situation is different, this article should not be taken as advice.