The main reason that appeals homeowners to refinance their existing home loan is to reduce their interest rate cost. And ultimately minimising monthly repayments.
Nevertheless, you cannot ignore the possibility of costs of doing home loan refinance. It may outweigh its benefits irrespective of how attractive is the interest rate.
So, before refinancing make sure that you are on the right track. Sometimes the home loan refinance cost comparison may be different what you planned after considering the following costs:
Exit fees are sometimes referred as termination or re-payment fees.
It may vary widely and only applies the size and duration if less than five year loan. However, after 1 July 2011 exit fees became illegal. So it won’t apply to the new loans but may apply to your existing loan.
Mortgage discharge fee
Mortgage discharge fee compensates lender for loss of revenue due to early loan termination or switching.
The lender may charge loan set up or upfront fee to cover the necessary documents costs. It’s usually payable on most of the new loans.
Lender Mortgage Insurance (LMI)
If your loan LVR exceeds like in most cases greater than 80% then the lender may require protection to cover that additional exposure or risk of non-repayments.
LMI is an additional cost on top of the loan. As you are paying interest on LMI’s premium.
Stamp Duty and other government charges
If you increase the loan while refinancing then stamp duty will be payable on the increase portion of the loan and it varies across States. Check with your mortgage broker for appropriate advice.
The lender may likely charge a fee if you break a fixed term contract and it varies on loan amount, prevailing interest rate, duration of the loan and the fixed term interest rate.
Monthly account fee
Before taking your new loan it’s better to check with your lender that you will be paying account keeping fee on monthly basis will increase burden to your overall costs.
New lender requires assessing the current market value of the property in order to determine the LVR for refinancing. This may additionally cost you around $150 to $300. However, some lenders have provision to waive this cost. Ask your mortgage broker for help.
Your mortgage broker may be a great help to negotiate with the lender for some of the above fees on your behalf. Also, help you to minimise some of the home loan refinance costs. However, the total cost may be significant and not to be ignored. Check with your mortgage and finance broker that are you getting better off in achieving your wealth goals with refinancing strategy.
If you are still unsure about this comparison against benefits and fees or charges then it’s worth checking to our expert team at Finmortg brokers for quick help.