Navigating the world of refinancing can seem daunting, especially with the myriad of costs and fees that could pop up along the way. However, equipped with the right knowledge, you can make informed decisions that benefit your financial future.

In this detailed guide, we'll deep-dive into the costs of refinancing in the Australian context. Ready? Let's dive in!

Application Fee

• What is it: It’s the start of your refinancing journey. The application fee is a standard charge that many lenders levy to cover the administrative costs of assessing your refinancing request. It’s like a ticket to the refinancing show.
• How is it calculated? This fee is often a fixed amount, set by individual lenders. It can range anywhere from $150 to $700.
• When does it apply? This fee typically applies once you submit your loan application, regardless of whether your loan gets approved or not.

Loan Establishment Fees

• What is it: Also known as a setup or loan approval fee, this cost comes into play when your new loan is being set up.
• How is it calculated? Similar to the application fee, it’s typically a fixed amount, ranging from $150 to $600.
• When does it apply? You'll encounter this fee post-approval but before the loan money is disbursed.

Valuation Fee

• What is it: As you aim to refinance, your lender wants to know the current value of your property. This ensures that the loan amount they provide aligns with your property’s worth.
• How is it calculated? The fee usually reflects the size and value of the property, but on average, you can expect costs between $200 and $500. With rural or regional properties, this valuation fee could be higher.
• When does it apply? Once you’ve started your refinancing application, but before final loan approval.

Lenders Mortgage Insurance (LMI)

• What is it: LMI safeguards lenders in case borrowers default on their loan. If you originally borrowed more than 80% of your property’s value and its value hasn’t sufficiently increased, brace yourself for LMI again.
• How is it calculated? It’s a percentage of your loan amount, which can vary based on the size of the loan and the deposit amount. LMI can range from a few hundred dollars to over $10,000.
• When does it apply? Generally, when your Loan-to-Value ratio (LVR) is above 80%. In these cases, it would be rare for refinancing to make sense, but you can get a sense of your LVR by completing an upfront valuation of your property.

Break Costs

• What is it: Fixed-rate loans can seem like a gift, with their steady interest rates. But if you decide to change your loan or pay it off during the fixed term, you might be hit with break costs.
• How are they calculated? They're based on the difference between interest rates and the time left in the fixed period.
• When do they apply? Only during the fixed term of a loan when breaking the conditions. It would be unlikely that anyone would look to break their loan until the fixed rate period ends, unless interest rates had dropped so substantially and it still made sense to look at.

Stamp Duty

• What is it: Rare, but still possible! This is a tax levied on certain documentation and property transactions.
• How is it calculated? Stamp duty varies across states and territories and is calculated as a percentage of the property value or loan amount, depending on circumstances.
• When does it apply? Mainly when you increase the size of your loan during refinancing.

Mortgage Registration Fee

• What is it: Every time a mortgage changes hands or is restructured, the government needs its records updated. This is where the mortgage registration fee comes in.
• How is it calculated? It's a fixed fee that varies between states and territories.
• When does it apply? Whenever a mortgage is registered, which is typically during refinancing.

Discharge Fee

• What is it: When you're ready to bid farewell to your current loan, your lender might have one last charge: the discharge fee.
• How is it calculated? It's a fixed fee ranging between $150 to $350.
• When does it apply? Upon concluding your previous loan.

The Silver Lining

Amidst these costs, there's some good news! Many Australian lenders are offering enticing Refinance Cashbacks and Rebates. These can often offset your refinancing expenses, sometimes even turning a profit. Remember, every dollar saved is a dollar earned! A refinance cashback will often range between $1,500 - $4,000, so can be a significant boost to your bottom line.

The Australian refinancing world is vast and varied. Being equipped with precise knowledge ensures that you're not just making a decision, but an informed one.

Feeling a bit overwhelmed? We get it. Why not chat with a professional who can guide you step by step? Book in a complimentary call with us. Whether it’s to answer a query or to begin your refinancing journey, we're here for you.

Are you looking to refinance, but unsure where to start? Click here to schedule a complimentary call. Let’s chart the best course for your financial journey, together.

Ally Home Loans Pty Ltd is your ally in finance for all of your home loan, investment property, business and commercial financing needs. With our wide range of lending solutions, expertise in financial planning and investment strategies, and extensive experience in working with both Australian residents and Australian expats, we are your partners for your lending needs.

Book an obligation-free, complimentary consultation here today.

Ally Home Loans Pty Ltd is an Authorised Credit Representative (Credit Representative Number – 494608) of My Local Broker (Australian Credit License – 481374). Important Disclaimer: Your complete financial situation will need to be assessed before acceptance of any proposal or product.