What Will It Cost to Refinance My Mortgage?
There are a number of costs and fees associated with refinancing your mortgage and it is a good idea to get the full picture before making a final decision.
To calculate at which point the benefit outweighs the costs (ie over how many months or years) ask your current lender and new lender what the applicable fees are.
Some the fees you may be faced with when refinancing your mortgage and who is charging them is listed below.
|Current Lender||New Lender|
|Discharge and registration of mortgage fees||Home loan application fee|
|Deferred Establishment fee (DEF) – applies if you refinance within a
certain period of time
|Valuation fee (of the property)|
|Break Costs (applicable for loans with a fixed interest rate)||Loan-legal fees|
|Registration of mortgage fees||Settlement fee|
|New stamp duty if you borrow more than your original loan
(not applicable in all states and territories)
Generally speaking, refinancing can cost you between $500 and $2000+. However, if you do your sums correctly, refinancing out of one mortgage and into another may save you significantly higher amounts over the life of your loan, with short term pain, but longer term gain.
Also known as break fees, discharge costs, deferred establishment fees, early repayment fees, termination fees, documentation costs or administration costs, these are standard in today’s mortgage contracts. Exit fees can apply if you decide to refinance to a new lender, swap from a fixed to variable loan or repay your mortgage before it is due. These early repayment fees vary widely according to the lender. It is a good idea to read your loan contract terms and conditions carefully to understand which fees will apply.
If the mortgage you are exiting has no break costs, then you will recoup the cost of refinancing much quicker. Some loans (with very low rates of interest) carry substantial discharge fees.
In these cases, the borrower may see a difference in their mortgage repayments if switching to a lower interest rate, but if costs are built into the refinance, it can take months or years to recoup the discharge cost.
The exit fees can be calculated in two ways; either as a percentage based fee or a flat fee. There are two types of percentage based fees: the first is calculated as 1-2 months interest charges and the second is a straight percentage normally calculated on the original loan amount or loan top up amount (whichever is greater).
The flat fee is a straight dollar figure applied to the mortgage loan amount.
HANDY HINT: Because exit fees aren’t included in the comparison rate, mortgages can be made to look cheaper than they actually are by applying fees at the back end rather than upfront.
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