Getting a mortgage comes with fees — that’s probably not a great surprise to anyone reading this. But what about refinancing an existing mortgage? Many Australians choose to remortgage their homes for a variety of reasons, including more favourable interest rates, to shorten the length of the loan, and to lower their monthly repayments.
It can be a good idea — but it comes at a cost. In fact, it comes at a number of different costs. Some of these apply to everyone and some only apply to certain cases. In this article we’ll explore the various fees associated with refinancing your mortgage and what they mean for you.
We can break down mortgage fees into those relating to your existing loan and those that apply to your new lender.
Fees Relating to Your Old Lender
A Fee to Terminate Your Existing Mortgage
Known as a “discharge fee” or “termination fee”, this cost applies when your original lender wants you to cover their admin costs to end your mortgage contact.
Break Cost
The break cost comes into play when you have a fixed rate mortgage and you plan to refinance before the term ends. The idea is to compensate the lender for the money they lose as a result of no longer having you as a borrower. This is because lenders are able to offer fixed-rate loans as a result of an agreement they have with a third party. When you break the loan, they’re also required to break their loan.
Lenders perform a calculation to work out how much you owe in break fees. As a rule of thumb, if interest rates have gone down since your fixed rate loan began, you’ll pay more in break fees. In a worse case scenario you could end up paying tens of thousands of dollars, so break fees are a major consideration when thinking about refinancing.
Fees Relating to Your New Lender
Application Fee
You may choose to refinance your mortgage with the same lender, but if you choose to leave them behind and work with another party, you should expect to pay a mortgage application fee.
This is to cover the various admin costs associated with the loan and can vary quite a bit in terms of cost. Typically you’ll be looking at around $250, but it can go much higher in some cases.
Property Valuation Fee
Your new lender may ask for a valuation of your property before they agree to a loan. This is for much the same reasons as your initial lender asked for a valuation — your new lender wants to reassess your situation and make sure the loan amount is reasonable compared to the value of the property. Many lenders don’t ask for a property value and for those that do it’s rarely more than one or two hundred dollars.
Mortgage Registration Fees
When you got your original mortgage, you paid a registration fee to register yourself as the official owner of your property. This is done for a few reasons, for example so you don’t sell the property without repaying the lender, and so future buyers can check for any claims against your property.
Mortgage registration fees vary depending on your state, for example in Queensland the fee is $197.
Always Work With an Expert
Refinancing your mortgage isn’t something to take lightly. As you can see, there are fees everywhere and while most of them are fairly low, some of them — like break costs — can run extremely high if you aren’t careful.
It’s always best to approach refinancing with the help and guidance of an experienced broker. A good broker can help you choose the best lender for you, often drawing on their own extensive network of lenders who you may otherwise find it impossible to connect with. They can also help you navigate all the costs involved, avoiding any unpleasant surprises and ensuring you don’t end up with an unfavourable deal on your new loan.
At Lynam Home Loans, we can help you with all this. We have years of experience working with borrowers around Mackay and the state of Queensland, ensuring they get the very best deal on their original and refinanced home loans.
Get in touch with us to find out more about how we can help you do the same.
