Weighing Up The Costs Of Refinancing
You refinance your home loan with the intention of saving money, so you need to make sure that the actual refinancing process does not cost you more than the savings you will make from having a more affordable or easy-to-use online. Everyone has their own limits and priorities and so you need to consider the common fees and the acceptable costs in relation to what is most important to you in a refinanced home loan.
Common Fees Of Refinancing
Refinancing can often be just as costly if not more than applying for a home loan in the first place. Therefore learn more about the fees you can expect when you refinance your home loan to help you calculate whether this is a cost-effective option. The costs of refinancing are likely to include:
- Exit fees. Even if you are refinancing with the same lender there are still exit costs and deferred establishment fees to be charged when you cancel a loan and these can sometimes be tens of thousands of dollars to
- Application fees. You will remember these from the first time around when you applied for your home loan and when you refinance you are essentially applying for a new home loans and so you will have to pay establishment and application fees on your new loan.
- More fees from your new lender. In addition to application fees you may also have to pay loan approval fees, the settlement and handling fees and mortgage registration.
- Additional lenders mortgage insurance. The lenders mortgage insurance is based on your loan to value ratio and if you are refinancing your loan then your LVR is likely to change and so you may need to pay more lenders mortgage insurance.
- Mortgage stamp duty. The stamp duty on your loan is also based on the value of the loan and if you are refinancing and changing the value then you may need to pay more stamp duty.
- Ongoing fees. Before you refinance to a new loan find out about the ongoing costs such as annual fees and transaction fees to make sure that your refinance option will be affordable in the long term as well.
Acceptable Refinancing Costs
To help you judge whether the refinancing costs are viable you need to be realistic about the options which are available on home loans and you need to look at your savings overall, rather than simply seeking out a loan with the lowest interest rate or the most features to refinance to. Instead to help you decide whether the refinancing costs are acceptable in your situation:
- Will you benefit within 12 months? To help you determine whether refinancing is a good idea for your situation, look at whether the savings you will make will outweigh the exit costs and application fees you have to pay in the first 12 months after you refinance. You should expect to see savings within 12 to 18 months after you have refinanced to know you have made the right decision.
- You might need to wait out a fixed rate. If you choose to refinance your home loan while you are in the middle of a fixed interest rate period, you could be paying exit fees which are as much as $30,000. It is unlikely that you will save $30,000 in interest or fees if you refinance and so you could be better off waiting until the end of your fixed interest rate period and refinancing then.
- Seeing significant interest rate reductions. When comparing interest rates on home loans you want to refinance to, look for rates which are at least 0.75% to 0.8% lower than what you are currently paying as this will reward you with significant savings which are likely to outweigh the costs of refinancing.
When you weigh up the costs of refinancing you may find that a new home loan is not the resolution your finances need. At the same time, knowing what to expect from exit fees and how to determine whether refinancing is a feasible option can help you make the right decision when choosing a new home loan. For more help and advice on what makes for reasonable refinancing costs, talk to Home Loan Finder now or complete an enquiry form for more information.
Related posts:
- Costs of Refinancing
- Know the Costs of Refinancing
- Refinancing Closing Costs
- Mortgage Refinance Costs
- Can you Save Money by Refinancing
- Refinancing Risk
- Exit Fees And Refinancing
- How to Refinance an Existing Mortgage with HSBC
- When Refinancing Doesn’t Make Sense
- Refinance Fees
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