Do the Benefits of Refinancing Far Outweigh the Associated Costs?
Unlike your first home loan, refinancing your current mortgage will involve a number of costs that are specific to the refinancing process, especially if you’re looking at increasing your loan amount. There are fees involved in switching over from one loan type to another, as well as a host of other charges, from legal to early exit fees, that you’ll have to take into account.
It’s important to note that for each feature you decide to include in your new home loan, there may be an associated cost that you will have to bear. As a general rule, more features equals a higher rate.
Hopefully, by now you’ve realised that an attractive rate or a particular feature on its own is not the only reason to make an application. Refinancing will more often than not, get you a better deal but it’s always wise to weigh up the costs and compare them to the anticipated benefits of a new home loan.
This will involve doing the numbers to ensure that the new home loan meets as many of your needs as possible. Naturally, there will be trade-offs that you will have to make along the way. As always, it is best to engage a lending specialist to help work out the viability of a particular refinance option.
The ultimate goal is to ensure that you’re not losing money as a result of refinancing your current loan.
You will have to be diligent in your calculations. Regardless of your refinancing goal, the bottom line is that you need to come out better-off at the other end of the deal!
The typical costs involved in refinancing a home loan can be grouped under these four broad categories:
Borrowing / Establishment / Package
These fees refer to the costs involved in opening a new home loan account with a new or current lender. If you are refinancing with your current lender, some of these costs may be avoided.
Exit / Early Discharge / Break fee
These fees refer to the costs involved in closing your old home loan account that are charged by your current lender.
Legal / Government
In addition to lender charges, there are standard government charges, like registration fee, stamp duty (if you’re increasing the size of your loan) and property title transfer, that need to be paid irrespective of whom you decide to go with for refinancing.
Valuation / Appraisal
It is very important to understand the difference between a valuation and an appraisal so that you don’t get caught out. A valuation is a formal process that involves a qualified valuer determining the real market value of your property formalised in a report that you may have to pay a fee for depending on the new lender’s policy. An appraisal, on the other hand, is a ‘guesstimate’ of what a property is worth and it is not legally recognised.
Different lenders refer to the same fees and charges in slightly different terms, and it pays to do your research in advance and be aware of what to expect. That way, you can maximise the benefits of refinancing.
At Mortgage House, we’re no strangers to the homeowner’s journey. It’s a long (but rewarding) one.
But don’t worry, we can help with that.
If you’re thinking of buying a home or refinancing your existing loan, you can contact us for information about the best options for you when it comes to your mortgage.