To refinance or not to refinance – that is the (hot) question. While the chance to refinance into historically low interest rates has passed – there are still ample reasons why refinancing is a fantastic opportunity for many homeowners. Refinancing can get you a better deal on your home loan, or a home loan that’s more suitable for your circumstances. And many homeowners are jumping at the opportunity. But others are cautious. They aren’t sure about the timing or the cost. In fact, many are wondering, "how much does it cost to refinance a home loan?"

How much does it cost to refinance a home loan?

When it comes to refinancing a home loan, there are costs involved, regardless of which lending institution you choose. Many of these costs tend to be standard across the board but variable (one lender may charge more than another). Here are the standard fees and charges you should look out for when refinancing your home loan.

Discharge fee

Most home loans will have a small discharge fee. It may also be called a termination or settlement fee. A discharge fee covers the administrative cost of the lending institution removing the mortgage that they have registered over the title of your property. You may also have to pay additional legal or administrative costs associated with the discharge. Broadly speaking, discharge fees can range between $275 and $325. But they may be higher or lower.

Early exit or break fees from existing home loan

You may have to pay an early exit or break fee to your existing home loan lender if:

• You have a fixed-rate home loan; or
• Your home loan is dated before July 2011.

In 2011, the Australian Securities and Investments Commission (ASIC) banned early repayment fees on all variable-rate home loans. So, a variable-rate home loan dated on or after 1 July 2011 does not have early exit fees. Early exit fees are incurred on fixed-rate mortgages because the lending institution will likely experience the loss of the fixed-rate of interest they expected to receive over the life of the home loan. As early exit fees can be difficult to calculate, it’s a good idea to ask your lender for an estimate, should you be thinking of refinancing.

Release of mortgage fee

Some Australian states impose a release of mortgage fee and the cost may depend on various other elements. In Queensland for example, a release of mortgage fee depends on the number of people listed as mortgagor. If one person is the mortgagor, the current fee is just over $200.

Application fee

An application fee is a one-off fee which covers the administrative costs associated with establishing the mortgage. An application fee may be charged if your refinanced home loan is with a different lending institution than your existing home loan. Other names for an application fee are establishment fee, set-up fee or start-up fee. Application fees vary but can be up to $700. Some lending institutions may choose to waive application fees as a way of attracting interest in their home loan products.

Lender’s Mortgage Insurance

If you are looking to borrow more than 80% of a property’s value from a lending institution, you may have to pay Lender’s Mortgage Insurance (LMI). When purchasing a home, this would be when your deposit is less than 20% of the property’s value. When refinancing, it’s when you don’t have sufficient equity in your home (through the amount you have already paid on your home loan) – or your home has dropped in value. We recently talked about LMI in How much deposit do I need for a home loan? Over the life of a home loan, LMI can significantly add to your home loan repayments, so be aware of your current equity in your home when seeking to refinance.

Valuation fee

If you are moving to a new lender it may require a current, professional valuation of your home, before refinancing. This will establish the level of equity you have in your home. The valuation fee can depend on the lender and where your home is located (fees tend to be lower in urban areas compared to rural areas) but generally ranges between $200 and $700. Your lender could pass the cost of the property valuation on to you – and some don’t charge a valuation fee at all – so it’s best to find out.

Settlement fee

A settlement fee is an administrative fee paid to your new lender, for the costs associated with the settlement (finalisation) of the loan.

Average costs associated with refinancing a home loan

When you pull all these fees together, they can feel like a lot. But the average costs associated with refinancing a home loan average out at around $750 to $900. Is refinancing worth it? At the end of the day, most homeowners refinance to save money over the life of their home loan. So, you’ll want to answer the question, "how much does it cost to refinance a home loan" first. Once you have this number, factor that against the savings that you’ll make with your new loan. You want to ensure that you’re in a better position than with your current loan. If you are, then the costs are certainly worth it.

Speak to an expert

Now that you know how to answer the question, "how much does it cost to refinance a home loan", get in touch with our expert team. We can talk you through the refinancing process and figures, and help you find a new home loan that best suits your needs. And with over 40 of Australia’s biggest banks and lending specialists at our fingertips, you have a wide range to choose from. Give us a call today at Lending Loop.