Borrowers who refinance may not only save on repayments, but also get access to more features. But there are costs involved.
When it comes to switching home loans in order to get the best deal, Aussies aren’t exactly proactive. A 2017 State Custodians survey of 1,006 people nationwide discovered that only 13 per cent of all respondents say they are always on the lookout for better home loan rates.
In fact, one third (33 per cent) of Aussies are apathetic about shopping around their home loan deal in one way or another. One in six people (17 per cent) admitted that whilst they’d like to look for a better deal, they either weren’t sure how to go about it, didn’t have the time or couldn’t be bothered. Meanwhile 16 per cent say they wouldn’t even consider shopping for a better rate.
However, the costs involved in refinancing could end up outweighing the benefits of refinancing if you do not do your research. So what are the costs involved with switching home loans?
When you refinance, the new loan may have upfront setup costs. The most common may include:
- Loan application fee
- Valuation fee
- Title insurance
- Settlement fee
Speak to your new lender about the fees involved in setting up the new loan so you can factor these into your calculations.
Although most early exit fees have been abolished, most lenders will charge a fee to close the loan down. This will have been disclosed to you in your loan contract when you first took out the loan. If you can’t locate it, call your lender about the fees to close the loan.
If you are refinancing a fixed rate home loan and you are still within the fixed period, you may be subject to a 'break cost'.
If variable rates have dropped since you took it out, then the break costs may be quite steep, but if they have risen they may be a lot less. It is a complicated calculation and may take a few days for your lender to come back to you. As a general rule if these break costs are high then they may negate any benefit and you will wait until the fixed term expires.
State Governments charge a mortgage registration fee when you refinance. It is charged twice, once to remove the old lender and one to register the new.
Mortgage registration fees will vary from state to state, so lookup the Office of State Revenue in your state to see how much it will be.
If your loan amount is still above 80% of the value of the property and you are looking to refinance, then you may incur mortgage insurance costs again as it is lender specific. Mortgage insurance can add to thousands of dollars so you won’t want to incur it twice.
However, as each lender is different, it is worth shopping around and speaking to lenders about their lending criteria. The Key Facts Sheet is a great way to get a personalised comparison rate based on your loan amount and loan product you choose and includes the ongoing fees.
For a Key Facts Sheet for a State Custodians loan, please click here.
Regularly reviewing your home loan gives you the chance to keep up to date with the latest products and interest rates on offer. Finding a lender that understands what you are looking for and will take the time to explain the benefits can be a big help.
Interested in refinancing?
Take a look at our blog, "Guide to switching home loans".