If you’re wondering about the cost of refinancing your home loan, use Savvy’s complete guide to home loan refinancing to find out more.
Fact checked
There isn’t any one average cost to refinance your home loan, as the cost of mortgage refinance fees can vary from almost zero to thousands of dollars. Knowing which fees may affect you can help you make a sensible choice when you’re refinancing your mortgage.
Savvy can help you save money by comparing loans that are suitable for your refinancing needs and presenting you with a range of options to choose from, including loans with no establishment fees and no ongoing administration fees.
The cost of refinancing your home loan will vary depending on a variety of circumstances. Some of the mortgage refinance fees you may be charged when refinancing your home loan include:
Despite all the fees that could be applicable if you choose to refinance your loan, it may be the best financial decision to make, as you could potentially save thousands in interest over the life of the loan. In general, variable rate loans will be far cheaper to refinance than fixed term loans, as they don’t come with any break fees.
You can save yourself thousands of dollars if you refinance to a loan with a much lower interest rate, or take on another loan with a shorter loan term period, or find a loan that has additional features which allow you to save on the interest you’ll pay.
The effect of reducing your interest rate from 3.5% p.a. to 2.8% p.a. after five years – a saving of $44,500
| Original loan amount | Loan term remaining | Interest rate | Interest paid over the life of the loan |
|---|---|---|---|
|
$450,000 |
25 years |
3.5% p.a. |
$277,453 |
|
$450,000 |
25 years |
2.8% p.a. |
$232,953 |
The effect of reducing the term of your loan from 30 years to 25 years after five years – a saving of $33,678
| Original loan amount | Interest rate | Loan term remaining | Interest paid over the life of the loan |
|---|---|---|---|
|
$450,000 |
2.8% p.a. |
25 years |
$215,649 |
|
$450,000 |
2.8% p.a. |
20 years |
$181,971 |
The benefits you’ll gain depend on what sort of home loan and loan features you currently have, of course. These are some of the additional features that can be offered with variable rate loans to reduce the amount of interest you’ll pay over the term of your loan:
Offset account
This is a separate transaction account into which savings or wages can be paid. Any amount in the offset account is discounted from the loan principal you pay interest on, so the amount of interest you pay is reduced overall.
Additional lump sum repayments permitted
Variable rate loans often allow you to make additional repayments to reduce the sum you owe and pay your loan off sooner. This can be useful if you receive a windfall such as an inheritance or an annual tax refund.
Redraw facility
This allows you to redraw any additional loan payments you’ve previously made to get you ahead in your loan. It may be useful to be able to access these funds again if an emergency arises, or to purchase a large item such as a new car without having to take out an additional loan.
Gaining access to home equity
The amount of equity you have in your home is determined by the difference between what you owe on your home loan and its current value. For example, if your home is worth $600,000 and you owe $400,000 on your mortgage, you have $200,000 of equity. Of course, if house prices rise and your house is now worth $700,000, that means your equity has increased to $300,000.
You can use the equity you have in your home for many other purposes, such as:
It may be worthwhile waiting for your fixed rate loan period to end before refinancing to avoid exit fees, as they are calculated on the length of the fixed loan term remaining. Alternatively, if you really do wish to refinance as soon as possible, it may be worth waiting just an extra six months to reduce your exit fees.
LMI is required by lenders if you have less than 20% of the value of your property as a deposit. It may be worthwhile waiting to refinance until you have sufficient equity in your home to avoid the cost of LMI.
Your home equity will increase as you pay down your mortgage and house prices rise.
It’s a good idea to talk to your existing lender to see if they’re prepared to offer you a better deal before switching to another lender. If they believe they’re about to lose a valued client, they may be willing to reduce your current interest rate or waive switching fees to get you into a better loan and retain you as a customer.
Many borrowers have been stung by additional fees because they didn’t read their loan contract properly. For example, some lenders charge an interest rate ‘lock-in fee’ of up to $750, applicable every time a loan interest rate is fixed.
If this happens many times throughout the loan, the refinance fees at settlement could amount to several thousand dollars.
Banish home loan refinance fees altogether by finding a lender who offers home loans with no establishment fees, no administration fees and no ongoing fees or charges. Such loans do exist, so you can compare lenders with Savvy to find you an affordable loan that avoids loan fees forever.
Quantum Savvy Pty Ltd (ABN 78 660 493 194) trades as Savvy and operates as an Authorised Credit Representative 541339 of Australian Credit Licence 414426 (AFAS Group Pty Ltd, ABN 12 134 138 686). We are one of Australia’s leading financial comparison sites and have been helping Australians make savvy decisions when it comes to their money for over a decade.
We’re partnered with lenders, insurers and other financial institutions who compensate us for business initiated through our website. We earn a commission each time a customer chooses or buys a product advertised on our site, which you can find out more about here, as well as in our credit guide for asset finance. It’s also crucial to read the terms and conditions, Product Disclosure Statement (PDS) or credit guide of our partners before signing up for your chosen product. However, the compensation we receive doesn’t impact the content written and published on our website, as our writing team exercises full editorial independence.
For more information about us and how we conduct our business, you can read our privacy policy and terms of use.
© Copyright 2024 Quantum Savvy Pty Ltd T/as Savvy. All Rights Reserved.
© Copyright 2024 Quantum Savvy Pty Ltd T/as Savvy. All Rights Reserved.
Quantum Savvy Pty Ltd (ABN 78 660 493 194) trades as Savvy and operates as an Authorised Credit Representative 541339 of Australian Credit Licence 414426 (AFAS Group Pty Ltd, ABN 12 134 138 686). We are one of Australia’s leading financial comparison sites and have been helping Australians make savvy decisions when it comes to their money for over a decade.
We’re partnered with lenders, insurers and other financial institutions who compensate us for business initiated through our website. We earn a commission each time a customer chooses or buys a product advertised on our site, which you can find out more about here, as well as in our credit guide for asset finance. It’s also crucial to read the terms and conditions, Product Disclosure Statement (PDS) or credit guide of our partners before signing up for your chosen product. However, the compensation we receive doesn’t impact the content written and published on our website, as our writing team exercises full editorial independence.
For more information about us and how we conduct our business, you can read our privacy policy and terms of use.
