There are costs involved in refinancing your mortgage but the benefits can include freeing up your cash, lowering repayments and greater financial flexibility
Refinancing your mortgage to take advantage of beneficial rates or features can save you money in the long term, but you need to weigh up the short-term costs before making a decision. As Aussie’s Founder and Executive Chairman John Symond notes, you shouldn’t do it lightly – or too often.
“It’s not advisable to refinance your loan too regularly, for example every year,” he says. “Every two to three years would be a better scenario.”
The costs you might be looking at include:
When you refinance, your new lender may charge a range of upfront fees (see below). Not all lenders charge all of these fees, and some may be willing to negotiate or waive some costs. Some lenders also offer ‘cash back’ when you switch your mortgage to them, which could offset some or all of the costs of refinancing your mortgage.
- Loan application fee – a fee imposed when you apply for a loan
- Valuation fee – the lender may impose a fee to have your property professionally valued
- Settlement fee – your lender may charge a fee for the pay out of your current mortgage.
John says: Always ask your lender if they’ll negotiate these fees. You never know until you try and in today’s competitive market, you might save yourself some real money. A good mortgage broker will also know what deals are currently in the market to help you save or recoup costs.
Lender’s Mortgage Insurance (LMI)
Lender’s Mortgage Insurance protects the lender against default. If you’re borrowing more than 80 per cent of your home’s value, your loan-to-value ratio (LVR) will be over 80 and you may be asked to take out LMI.
This will involve a one-off premium. You might be able to capitalise it (that is, add it to the amount you’re borrowing) but this means you’ll be paying interest on it, which will add to its cost in the long term.
John says: Trying to keep under the 80 per cent LVR will save you LMI costs, which can run into thousands of dollars and end up costing you more than you bargained for. This may be more relevant for people looking to live in their home than investors.
Exit fees on new loans were abolished by Federal Parliament from 1 July 2011. If you took out your loan after that date, then you don’t have to worry about exit fees. But if your loan pre-dates the change, then you should check what fees – which can go by different names, like ‘early repayment fees’ or ‘deferred establishment fees’ – you’re liable to pay.
Exit fees vary widely though they usually only apply if you have had your current loan for less than five years.
John says: Exit fees are becoming a thing of the past but can still catch homeowners out, so make sure you do your homework.
Stamp duty and fees
Some states charge stamp duty on your mortgage if you increase the size of your loan, and they may also charge a ‘mortgage transfer fee’. This lets the various State Titles Offices know you’ve changed either your lender or your loan.
Aussie’s Stamp Duty Calculator shows the mortgage duty and any transfer fees that apply for your area.
John says: Don’t let stamp duty or fees keep you from refinancing your mortgage if there’s a long-term benefit, just make sure you can meet any payments you’ll owe.
If you think now might be the time to refinance, contact one of our Mortgage Brokers to learn about your options in detail.
What’s your take on refinancing – paying out your loan sooner, taking advantage of low rates to pay less, or using it to help fund other activities or investments? Tell us in the comments below.