With interest rates shifting and many fixed-rate loans nearing their expiration, refinancing has become a consideration for numerous individuals. As fixed-rate loans end, some borrowers are anticipating a significant increase—up to 63%—in their monthly mortgage payments. If you find yourself in this situation, it’s important to understand the costs associated with refinancing. Here’s a breakdown of the typical expenses to consider:
1. Mortgage Application Fee:
When switching lenders, you may encounter a mortgage application or establishment fee. This fee covers the processing of your application by the new lender. The cost ranges from $200 to $1000, with variations based on the lender and loan type. Sometimes, a valuation fee may or may not be included.
2. Loan Discharge Fee:
Parting ways with your current lender involves a discharge fee to cover administrative costs related to terminating your existing mortgage. Typically, these fees range from $200 to $400, but they can go up to $1000.
3. Property Valuation Fee:
Your new lender might require a property valuation as part of your refinancing assessment. The cost varies based on the lender and property location, being higher for rural properties. Valuation fees can range from $200 to $600 in urban areas and $600 to $1000 in rural regions. Some lenders offer free property valuations.
4. Break Fees:
If you currently have a fixed-rate loan, exiting it prematurely may necessitate payment of break fees. Calculating break costs can be complex and expensive. To understand these costs, reach out to your current lender for clarification.
5. Settlement Fee:
Similar to when you initially acquired your loan, you may encounter a settlement fee upon refinancing. This fee is paid to the new lender for finalizing the loan and generally falls between $100 and $400.
6. Mortgage Registration Fees:
The land registry in your state or territory charges a mortgage registration fee to record your mortgage on the property’s title. This fee can range from $120 to $210.
7. Exit Fees:
Exit fees were abolished by the Federal Government from July 1, 2011, for contracts signed after that date. However, if your loan was signed before that, you might still be subject to exit fees for ending your loan early. It’s recommended to check with your lender if you’re unsure.
Considering the Savings:
While the mentioned costs may appear daunting, it’s essential to balance them against the long-term benefits of refinancing. The savings you could attain through refinancing depend on factors like your current mortgage size, remaining loan term, the new interest rate, and any interest-saving features of the new loan.
As your finance broker, we’re here to guide you through the decision of whether to refinance, particularly given the current economic climate. We can assist you in weighing the costs against the potential benefits of refinancing and determine if a different loan structure aligns better with your financial goals and situation.
Reach out to us today to explore your options.