Refinancing can be a great way to save money if you believe you are paying too much for your loan, but there is more to it than just finding a loan with a lower interest rate and making the change. Before making the switch, ensure the savings you could make outweigh the fees involved. Here are the different exit costs to consider:
Although loans taken out after 1 July 2011 are not subject to deferred establishment, or exit fees, those taken out prior may still be. Also known as ‘early termination’ or ‘early discharge’ fees, they can sometimes be paid by your new lender but are normally applied to an early contract exit.
Also known as ‘application’, ‘up-front’ or ‘set-up’ fees, these cover the lender’s cost of preparing the necessary documents for your new home loan. They are payable on most new loans (unless you take a packaged loan), and the alternative to not paying this particular fee is being charged higher ongoing fees for the life of the loan.
Mortgage discharge fee
Covering your early legal release from all mortgage obligations, this fee is not to be confused with an exit fee. Also known as a ‘settlement’ or ‘termination’ fee, its purpose is to compensate your lender for the revenue it may lose due to the contract break.
Lender’s mortgage insurance (LMI)
The non-transferrable premium means that if you hold less than 20 per cent equity at the time of your refinance, you may have to pay LMI even if you paid it on the original loan. Extra care is also needed here because, whether or not you hold 20 percent of the original valuation of the property, you may not if the property’s value has decreased and; while LMI may not have been a consideration at all in the original loan, it may be payable on the refinance.
If your purpose for making the switch is to increase your loan amount, for example to fund renovations, then stamp duty will apply only to the difference between the original loan amount and the refinanced loan amount. Different rules apply in different states, so it’s worth speaking to your broker to see if this charge applies.
Other government charges
Fees are applied for the registration and deregistration of a mortgage so that all claims on a property can be checked by any future buyers. Varying from state to state, these can potentially add up to $1000 or more.
If you were on a fixed rate loan, your lender is likely to charge you a fee for ‘breaking’ out of the loan term. This fee varies depending on the amount owed, the interest rate you were locked into, the current interest rate and the duration of your loan.
Broker Clawback Protection Fee
This is a fee imposed by the individual broker in the instance that you pay out, refinance or close your loan that they have assisted with, and obtained a commission for. It is to protect the commercial viability of the brokerage to ensure they can offer you a low or no upfront fee model for their advice, and the origination of your finance. This fee must be disclosed upfront, and again at the time of engagement via your Quote document. It is payable under the NCCP Act whereby a broker incurs a “Commission Clawback” from the lender your finance was arranged through.
Although some of these fees can be negotiated by a broker, the total cost of refinancing can be substantial. SFE Loans can ensure that refinancing will help you achieve your goals while maintaining your capacity to service the debt. We can also ensure you are only paying the relevant fees for your unique circumstance.
Currently there are some substantial “cash back” offers available for refinancing clients, with multiple lenders.
Contact us today or download our free Refinancing E-Book for more information!