Learn about the Hidden Costs of Refinancing
When refinancing their home loans, Australian homebuyers often find themselves unaware of the hidden costs associated. SwitchMyLoan aims to expose these costs so as to enable you to make the best decision possible if you are considering refinancing.
Let’s take a look at the three biggest sets of fees for refinancing.
While the government abolished exit fees back in 2011, it’s important to know that there are STILL government fees when you make the switch, so here’s a breakdown of costs associated with switching lenders.
|State||Mortgage Discharge||Mortgage Registration||Title Searches (Approx)||Total|
Stamp duty may also be a consideration, check with your local office of state revenue to find if it’s payable in your scenario.
Woooahh, backup… I thought the government banned the exit fees? Yes they did, they banned the fees that they specifically charged you as a penalty for leaving. Banks can still however pass on administrative fees for discharging your loan. Typically this fee ranges from $250 to $400 depending on the bank that you deal with. Some banks however don’t pass on these fees at all (if you’re unsure, call your bank directly to find out).
Most large banks pick up the tab for the valuation of your property when you move to a new lender, however smaller lenders will typically pass on the fee. Other bank fees to consider are application fees (ranging from $200 to $700), settlement fees (ranging from $200-$500) or any other fee that sounds like it is ‘administrative’ in nature.
The most important fee to consider is Lenders Mortgage Insurance (LMI). This is where your LVR or (Loan to Value Ratio) exceeds 80%. For example; if your property is worth $500,000 and your outstanding loan balance is $400,000 (Loan: $400,000/ Value: $500,000 = LVR: 80%) Then you’re safe, if however your property was only valued at $480,000 – then your loan to value ratio would be 83%. In this case you would be required to pay an insurance premium in order to protect the bank in the event you cannot pay your mortgage. In most situations people may wait until they’ve paid more off their home loan, or wait for their property price to increase so they’re under the 80% before going ahead with refinancing.
Fixed rates are tricky to measure, as the cost with “breaking” your fixed rate loan changes daily. The rule of thumb is if your current fixed rate is higher that the average variable rates on offer with your bank, then the likelihood of having a higher break fee is most likely. On the flip side, if your fixed rate is well below the current variable rate, then technically the bank should owe you money, i.e. you forgoing a lower rate to move to a higher one. The instances of this happening are quite low, and would usually only come about if you are selling your home.
So there you have it, the three major fees to look out for. Be sure to ask all these questions when you speak to your mortgage consultant, and not just the potential savings.
In essence, the hidden costs of refinancing can range between $500 to many thousands of dollars. Weigh up the pros and cons about costs vs money spent when considering switching lenders. Consider the long term benefits of switching your loan where you will end up saving thousands. Check out the link below and see how much money you could saving on your home loan today.Compare Your Home Loan (Free)
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