The cost of refinancing your home loan

The major costs of closing your home loan

Break costs

If you leave a fixed rate home loan before the fixed term ends, your lender may charge a break cost. The amount can vary depending on your loan, remaining fixed term and changes in wholesale interest rates.

Discharge settlement fee

Your current lender may charge a discharge or termination fee when you close your home loan. This covers the administration involved in closing the loan and may apply to fixed or variable rate loans.

Main upfront costs

Loan establishment fee

When you refinance, you may need to pay an application fee to cover the administration cost of setting up the new loan.

Property valuation fee

You may be required to get a property valuation in order to determine your equity. This cost can vary and some lenders may include the valuation in your application fee. Some lenders may cover the cost of the valuation themselves.

Settlement fee

If there are legal costs in settling a new home loan with the lender, you may need to pay a settlement fee.

Mortgage registration fee

When you switch lenders, the new mortgage must generally be registered on your property title. The relevant state or territory government charges a registration fee, which varies by location.

Ongoing costs

Check whether the new loan has monthly or annual fees, package fees, offset account fees or charges for certain transactions. Compare these costs alongside the interest rate and loan features to understand the loan’s longer-term value.

Also consider how long it may take for any repayment savings to recover the upfront costs of refinancing.

Other considerations

Switching your interest rate type

When you refinance, it’s a good opportunity to weigh up the pros and cons of fixed vs variable interest rates.

Introductory rates

It’s important to be aware that introductory interest rates on variable rate home loans will revert to the standard variable rate after the introductory period ends. Make sure you’re aware of what those rates are and what they mean for your repayments and interest charges over the life of the loan.

Lenders Mortgage Insurance

Lenders Mortgage Insurance (LMI) may apply if your new loan exceeds 80% of the lender’s assessed value. Even if you paid LMI on your existing loan, you may need to pay it again when refinancing because the previous policy generally doesn’t transfer to the new loan.

Consider keeping your current repayment amount

Refinancing to a lower interest rate can be a good opportunity to make the most of lower regular minimum repayments. But it also gives you the option to maintain the same repayment amount as your previous loan and reduce your debt faster.

Fixing your rate

Keep in mind that if you switch to a fixed interest rate home loan, there may be limits to what you can repay over the fixed interest rate term before you incur break costs – so make sure you factor that figure into any extra repayments you make.

Changes to your loan term

If you are considering extending your loan term when you refinance, your repayments may reduce, but the total amount you’ll end up paying to repay the loan will increase.