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 is a guide to 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 sometimes payable on most new loans.
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 pay your current lender for preparing the discharge paperwork and legal costs. Generally this is a few hundred dollars.
Lender’s Mortgage Insurance (LMI)
Whilst at purchase you can borrow up to, and in some cases over 95% of the value of your property, when it comes to refinancing, 90% is the maximum generally allowed. If it has been some years since you purchased, the increase in value generally means there is little likelihood you will have to pay again.
Other Government Charges
Fees are applied for the registration and deregistration of a mortgage.
If you are 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.
In all recent refinances I have organised, the interest rate has saved the clients substantial amounts in monthly payments due to lower rates.
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