Back to Inspire Home

Finance

How much does it cost to refinance?

By ,| 5 min read

Refinancing your home loan can be a smart way to reduce your monthly mortgage repayments or change the terms of your loan to better suit your needs. But what are the costs involved?

When you refinance, you’ll often be charged certain fees that will vary depending on your situation, your current home loan and your new home loan.

To ensure you aren’t caught off guard with the different fees and charges, we’ve created a list of the common costs to look out for when you refinance.

1. Break costs

If you are currently on a fixed rate home loan, you may need to pay break fees when you refinance. This is to compensate your lender for the loss they incur when you break the terms and conditions of your fixed rate loan.

Whether it’s worth breaking your fixed rate home loan will depend on the potential savings – it’s important to do the maths when you’re weighing up your options.

How are break costs calculated?

Break fees are calculated on a sliding scale and each lender may use a different formula to calculate the cost.

They will often be determined by your outstanding loan amount, the time left on your fixed term and the difference in interest rate.

Your lender would have provided this information in your home loan contract. If you’re unsure or would like to know exactly how much you’ll need to pay, get in touch with your lender.

Some lenders will use the following formula to calculate break costs:

break-fixed-rate-formula

2. Application or establishment fees

An application or establishment fee is the cost that some lenders charge to apply for or set up a loan.

While the price can vary from lender to lender, it will typically cost up to $1,000. In some cases, lenders may drop the fee altogether.

Additionally, there might be extra costs involved in preparing and registering a home loan with the lender – like a valuation fee or the lender's legal fees.

Refinancing fees and costs are not always set in stone. If you’re in a good financial position your Home Loan Specialist or mortgage broker can negotiate these fees for you.

One cost you won’t have to worry about when refinancing is exit fees. Exit fees were banned from all home loan contracts that were signed after July 1, 2011.

If your home loan contract was signed before July 1 2011, you may still incur exit fees.

3. Lenders Mortgage Insurance (LMI)

If your equity is less than 20% of the property's value or your Loan to Value Ratio (LVR) is above 80%, you may be required to pay LMI.

It's important to remember that this insurance only protects the lender in the case you fail to make your home loan repayments.

The cost of LMI can amount to 1-3% of the home’s value but keep in mind, it does not go towards repaying the home loan principal. It is typically paid on top of your monthly repayments to your lender.

Use our calculator to find out how much you might pay in LMI fees.

Will you need to pay LMI?

See how much you might need to pay if you're low on a deposit.

Calculate LMI

4. Property valuation fees

Each time you refinance, lenders will likely request a valuation of the property to assess whether it has increased or decreased in value.

Depending on your lender, this fee can vary from $100-$600 or the fee may be waived. You may be able to opt to have your property valued through an independent valuer.

5. Discharge fees

Discharge fees are incurred when buyers pay out their home loan or when they refinance. This fee covers the administration and legal fees for new documentation.

Depending on your lender, these fees could range from $150 to $500, so it’s a good idea to check whether your lender charges discharge fees before opting to refinance.

6. Lender legal fees

Some lenders will charge back the legal costs involved in settling a loan to borrowers.

Typically, this is included in the discharge fee, however, some lenders may opt to charge legal fees separately.

Additionally, buyers may choose to seek help from a solicitor or conveyancer during the refinancing period, which will incur additional fees for the buyer.

Afraid you're not getting the best home loan?

Compare rates from 25+ banks to see how much you could save.

Find a better deal

7. Stamp duty and government fees

This isn't common for refinancing an existing property, but depending on how you choose to refinance and the state or territory that you live in, you may or may not be subjected to stamp duty fees.

If you choose to refinance your home loan for an amount that is larger than the original principal, you may be liable to pay stamp duty fees. The cost of these fees are only applied to the difference between the original and new amount.

You might also be charged stamp duty if you transfer ownership of the property to someone else.

The laws regarding stamp duty fees vary between states, so it could be worthwhile double checking this.

If you purchase a new property, however, you will be charged stamp duty unless you are eligible for exemptions or concessions.

8. Loan features you might be charged for

When you refinance, you’ll have the opportunity to introduce different features into your home loan, like a redraw facility or offset account.

Which features will be available to you will depend on what type of home loan you have. For example, a variable rate home loan gives you more flexibility and options when it comes to home loan features. A fixed rate home loan may have limits on some features, or not offer them at all.

These features can come with ongoing fees and charges you should be aware of.

Redraw facilities

Redraw facilities will allow you to ‘redraw’ any additional repayments you’ve made on your home loan, outside of the minimum repayment amount. You’ll often need to pay a fee to open a redraw facility and a fee each time you withdraw funds.

The fee charged is different between lenders and some will require a minimum redraw amount. Some lenders may provide borrowers with a number of ‘free redraws’ before they have to pay.

Lenders have different policies and fees regarding their redraw facilities so make sure you shop around to find out what redraw policy will work for you.

Offset accounts

Offset accounts act as a transaction or savings account attached to your home loan.

Any funds in your offset account will be used to offset the interest charged on your home loan’s principal amount.

For instance, let’s say you have an outstanding home loan amount of $500,000. You deposit $40,000 of savings into your offset account. This means you’ll only be charged interest on $460,000 for as long as you keep the $40,000 in your offset account.

The funds stored in this account can be withdrawn at any time, typically for free. However, you will likely be charged an annual fee of a couple of hundred dollars to keep your offset account running.

Check with your Home Loan Specialist to make sure that the amount you are saving in interest is greater than the offset account fees.

If you’re thinking of switching your home loan, it’s important to make sure you read all terms and conditions, and ensure that your new loan aligns with your financial objectives.

Wondering if refinancing your home loan is a good idea? Chat to one of our experts to find out how you can save.

How much can you save with an offset account?

Find out how much you could save each month.

Calculate savings

What could your home loan repayments look like?

Calculate your loan repayments

$
%
years

Got a home loan question? Just ask!

We're here to help. Get free expert advice at a time that suits you. Choose a time to chat with a Home Loan Specialist here.

The information in this post is general in nature and should not be considered personal or financial advice. You should always seek professional advice or assistance before making any financial decisions.

Tags: refinance, lmi (lenders mortgage insurance), stamp duty, application fee, discharge fees, switching fee

Check today's low rates

Tell us what you are looking for and see if you can save.

Search rates

Check today's low rates

Tell us what you are looking for and see if you can save.

Search rates
Home loan repayment saver tool

Home loan repayment saver tool

Enter a few details about your home loan and see how much you could save on your repayments

Important legal stuff

Lendi is the trading name of Lendi Pty Ltd (ACN 611 161 856), a related body corporate of Auscred Services Pty Ltd (ACN 164 638 171, Australian Credit Licence 442372). We will never sell your email address to any third party or send you nasty spam, promise.

# Quoted rate applies only to PAYG loans with LVR of 80% or less with security in non-remote areas. All applications are subject to assessment and lender approval.

Lendi is a privately owned and operated Australian business. Our mission is to change the way Australians get home loans by providing a faster, smarter and more secure home loan experience designed around the customer’s convenience and needs. Although Lendi compares over 1600 products (2,500+ products including feature and pricing variations) from more than 25 lenders, we don't cover the whole market or compare all features and there may be other features or options available to you. Lendi Group Pty Ltd, which is the ultimate holding company of the Aussie and Lendi businesses is owned by numerous shareholders including; banks such as CBA, 1835i (ANZ’s external venture capital partner) and Macquarie Bank, the Lendi founders and employees, and a number of Australian institutional investors and sophisticated investors including UniSuper.

*WARNING: This comparison rate is true only for the example given and may not include all fees and charges. Different terms, fees or other loan amounts might result in a different comparison rate. The comparison rates are based on a loan amount of $150,000 over a loan term of 25 years. Fees and charges apply. All applications are subject to assessment and lender approval. Quoted rate applies only to PAYG loans with LVR of 80% or less with security in non-remote areas. All applications are subject to assessment and lender approval.

IMPORTANT INFORMATION: Loan terms of between 1 Year and 40 Years are available subject to lender and credit criteria. Maximum comparison rate will not exceed 14.99% (see comparison rate warning above). Any calculations or estimated savings do not constitute an offer of credit or a credit quote and are only an estimate of what you may be able to achieve based on the accuracy of the information provided. It doesn't take into account any product features or any applicable fees. Our lending criteria and the basis upon which we assess what you can afford may change at any time without notice. Savings shown are based on user inputted data and a loan term of 30 years. All applications for credit are subject to lender credit approval criteria. Top rates include lenders who are on our panel and are then defined by the circumstances provided by the borrower.

The Lendi Group Pty Ltd, which is the ultimate holding company of the Aussie and Lendi businesses is owned by numerous shareholders including; banks such as CBA, 1835i (ANZ’s external venture capital partner) and Macquarie Bank, the Lendi founders and employees, and a number of Australian institutional investors and sophisticated investors including UniSuper.

Made with love at Circular Quay in Sydney, Australia. © 2022. All rights reserved.