Are you still going to the hairdresser with a photo of Jennifer Aniston’s ‘Rachel’ cut? Sometimes, what’s worked for you before isn’t exactly what you need now.
Refinancing your home loan can be a great way to blow out the choppy layers. You’ll get a lower monthly payment with a market-appropriate interest rate and the opportunity to choose a product that might better suit your lifestyle. However, the cost of refinancing a home loan can outweigh the benefits. Fees, loan terms and hidden costs can add up in the long term.
Do you know the real cost of financing a home loan?
Loan application fees
When you refinance, you take out a whole new loan. If your lender charges loan application fees, you’ll be stung with them a second time around.
Some lenders offer home loans with zero application fees, which could save you several hundred dollars when you refinance.
A low rate could mask high ongoing fees. Be sure to look at exactly what the refinanced loan will cost you on a regular basis, including any ongoing fees, fixed-rate periods or introductory offers. Some home loans can help you save here too, with no ongoing account-keeping fees.
Seeing the options side-by-side will help you choose a product that really delivers the best value.
Your new mortgage payment
Switching to a new, lower rate is obviously appealing, but like chocolate-covered cheese it might be better in theory. What is the term of your new loan? If you’ve already paid five years’ worth of interest, is it a good idea to start again with a new 25-year term?
Make sure you have a plan before you refinance. A low rate might be ideal if you’re planning to pay out quickly, but extending the life of your mortgage could cost more in the long run.
Loan discharge fees
A refinancing loan works by paying out your existing mortgage. Depending on the type of loan you’ve got, you may be stuck with a chunk of cash still to pay.
Variable-rate loans often come with minor administrative costs when paying out early but fixed-rate loans can be different. If the market has shifted in your favour since you first fixed, you could be up to ‘break costs’ – a way for a lender to recoup the difference. You’ll need to ask your current lender exactly what this cost might be for you.
Non-fee refinancing costs
You may come across all sorts of rules of thumb that determine whether it’s a good idea to refinance. Some people suggest looking at how long it will take for the costs of refinancing to be balanced out by savings on the new loan. Others follow benchmarks like the size of any rate saving you could secure.
What’s often overlooked is a simple litmus test: does the new loan offer features you don’t have at present? Paying off your loan sooner is the best chance you have to save money. There’s a whole range of features that can help you do just that.
So, how much does home loan refinancing cost? It depends on what you have already and the new loan you’re choosing. If you weigh up each cost and compare it to your current loan, you can make sure you’re getting the best possible deal.
To find out if refinancing is the right move for you, consider your goals and crunch the numbers with our refinance calculator.
Solicitor, valuation and agent fees may apply. Terms, conditions, fees and charges apply. Applications are subject to credit approval.
Your Choice Mortgage Brokers Pty Ltd ATF Halo Innovation Trust trading as Heart Mortgage Services - Australian Credit Licence 38643.
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