Raring to refinance? Be sure to do the maths


Are you still saying “YOLO” out loud? Perhaps, going to the hairdresser with a photo of Jennifer Aniston’s ‘Rachel’ cut? Sometimes, what is worked for you before is not exactly what you need now.


Refinancing your home loan can be a great way to blow out the choppy layers. You will 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 will 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.


Ongoing fees

A low rate could mask high ongoing fees. Be sure to look at exactly what the refinanced loan will cost you regularly, including any ongoing fees, fixed-rate periods or introductory offers. Your local finance broker can help you find a best-suited lender and save here too, with no ongoing account-keeping fees.

Use the local finance broker's expertise and service to get the numbers crunching. Seeing the options side-by-side will help you choose a product that delivers the best value.


Your new mortgage payment

Switching to a new, lower rate is appealing, but like chocolate-covered cheese, it might be better in theory. What is the term of your new loan? If you have 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 are planning to pay out quickly, but extending the life of your mortgage could cost more in the long run.

A finance broker can help you see exactly how much you will be paying over the life of your loan. And present you with product comparisons as well.


Loan discharge fees

A refinancing loan works by paying out your existing mortgage. Depending on the type of loan you have 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’ – away for a lender to recoup the difference. You will need to ask your current lender exactly what this cost might be for you. This breaking cost will be calculated at the time of request as a payout figure of the fixed-term.


Non-fee refinancing costs

You may come across all sorts of rules of thumb that determine whether it is 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 is often overlooked is a simple litmus test: does the new loan offer features you do not have at present? Paying off your loan sooner is the best chance you have to save money. There is 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 are choosing. If you weigh up each cost and compare it to your current loan, you can make sure you are getting the best possible deal.

To find out if refinancing is the right move for you, consider your goals and crunch some numbers with a finance broker. Easier still, talk to your local finance broker for a free assessment and mortgage health check for a refinance.

This article is prepared based on general information. It does not take into account individual financial objectives or needs and is not financial product advice. Solicitor, valuation and agent fees may apply. Terms, conditions, fees apply. Applications are subject to credit approval. The original content was quoted from ME The Feed portal.