Exit Fees And Refinancing
It is a lot to expect that the home loan you have when you first buy a home is going to suit you for the entire term, just as you are likely to grow out of your home, so too are you likely to outgrow your home loan and find yourself needing to refinance. Before you refinance your home loan you will need to know about the exit fees you are likely to be charged when you move from your existing lender or your existing loan. While you should get all exit fees confirmed in writing by a lender to make your comparisons easier, you can make some initial calculations with the help of Home Loan Finder to help you decide whether exiting your home loan now is the right move.
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Why Do You Have To Pay Exit Fees When Refinancing?
If your lender is providing in the service of a home loan, and you then choose to cancel your home loan so they don’t have to service your loan anymore then surely you only pay when they are providing a service, not when the service ceases? However in the case of a home loan with a lender aims to make their money back on you over the entire term of your loan, so if you terminate your loan contract your lender no longer has the opportunity to recoup fees and interest charges from your loan. Exit fees are also charged because:
- It is cheaper to keep a customer than to attract a new one. You learn not only wants to keep your business so they can continue to charge you home loan fees and interest, but also because the home loan market is very competitive and if they can keep you as a customer they don’t need to spend thousands and thousands of dollars on advertising to attract a new customer in your place. Lenders also calculate the cost of their advertising, in relation to the value of loans they lend in a year so while they don’t need to do any more advertising to attract your business, they do want to offset the costs of attracting in the first place through the fees and charges of your loan.
- To cover the costs of introductory low rates and fees. Honeymoon or introductory offers of low interest rates or fee waivers are offered on the basis that you will keep your loan with that lender so they can make up the costs of giving you such a discount. However if you refinance your loan lender does not have the opportunity to make back the money they lost in offering you introductory discounts.
- Basic home loans take longer to show a lender profit. A home loan without any additional features and extras is often cheaper for you if you are willing to forego much of the flexibility which can be afforded to home loan customers with modern loans. However our basic loan is able to offer such a low interest rate and such an affordable fee structure because the lender averages their profits out over the term of the loan and if you leave early they don’t have the chance to cover their costs.
How To Calculate What Your Exit Fees Would Be
To give you an idea about just how much you could be paying in exit fees to refinance your home find out more about the types of exit fees and how they are calculated. There are three main types of home loan exit fees and these are:
- No exit fees. It is possible that you have a home loan where there are no exit fees charged. However having no exit fees is a feature which is often set at the time of application so if you are looking for a new home loan you can pay to find one which doesn’t charge exit fees and if you are refinancing from an existing loan you can hope that you already have one which does not charge exit fees.
- A flat exit fee. A flat fee is typically only available on a standard variable home loan and can range from $200 up to $2000 depending on the lender. The lender decides on the fee amount depending on the cost of signing you up at application, and how much it costs them to close your loan. This fee is also usually made up of statutory and legal fees of around $150.
- An interest-based fee. These are the most common types of exit fees you will find on a home loan and are based on a number of months’ interest on the amount outstanding on your loan at the time you refinance, or the amount you borrowed originally. Interest-based fees are charged on both fixed interest rate loans and variable-rate loans and are most common on a variable-rate loan, where interest-based fees on a fixed interest rate loan are more inflexible.
On a variable rate home loan with an interest-based exit fee you could be paying:
- Three months worth of interest if you refinance your loan before the end of the first year.
- Two months interest if you exit your loan before the end of the second year.
- One month’s interest if you exit your loan before the end of the third year.
On a home loan with a fixed interest rate or a discounted rate you could be paying:
- Three months interest if you close your loan before the end of the second year.
- Two months interest if you exit your loan before the end of third year.
- One month’s interest if you exit your loan before the end of the fourth or fifth year.
Calculating exit fees on a home loan is a complicated business and you want to make sure you have the right information if you are thinking about refinancing because the exit fees could be the difference between you refinancing your loan now or in a year’s time. For more information about how or exit fees would be applied to your home loan in your situation, contact Home Loan Finder and we can help you with the calculations.
Related posts:
- Watch out for Hidden Early Exit Fees
- Weighing Up The Costs Of Refinancing
- Government Cracks Down on Loan Exit Fees
- Home Loan Exit Fees banned on new variable rate home loan
- Exit Fees & Break Fees
- Refinance Fees
- Refinancing Risk
- How to Avoid Home Loan Exit Fees
- Home Loan Exit Fees
- Know the Costs of Refinancing
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