What are the costs of refinancing vs the benefits?


July 23, 2019

refinancing

You saved up for the deposit, filled all the paperwork and scored yourself a home loan. But what happens if after a month, a year or decade, your home loan is no longer the best fit? The good news is, you’re not locked in for life. At any time, you can refinance and switch over to another home loan. Here, we give you the lowdown on everything you need to know about refinancing your home loan.

What’s involved in refinancing your home loan?

The idea of refinancing is to find another mortgage with a lower interest rate or repayments. The first step is to speak to your current lender to see if they have a more competitive option. This may include discounted interest rates or waived fees.

You should also look around at the rates and specials offered by different lenders, and the cost of switching over.

If you decide to refinance you will approval can take anywhere between a day to eight businesses days. From there, your new lender will communicate with your old lender to let them know you will be exiting and take care of any necessary steps like title transfer. If you’re staying with the same lenders, they’ll switch over your mortgage and go through the same settlement process.

What fees do you have to pay when refinancing?

  • Closing fees to your existing lender.  
  • Set-up fees to your new lender.  
  • Title insurance might need to be paid.
  • Lender’s Mortgage Insurance needs to be paid if you haven’t accrued 20% in equity.

 

Do you pay stamp duty when you refinance?

No, you do not have to pay stamp duty again.

Can I refinance my mortgage with no closing costs?

Yes, some lenders offer no-closing cost refinancing, but the trade-off is normally a higher interest rate which affects your total mortgage balance.

 

Do you have to pay title insurance again when refinancing?

Title insurance costs are often paid by the lender, but, some do charge a title insurance fee. Title insurance can cost anywhere between $500 to $3000.

Which bank is best for refinancing?

The best bank is always the one with a home loan that fits your individual financial needs. Different banks offer different refinancing incentives.

What are the advantages of refinancing?

Many refinance to reduce the interest rate on their existing home loan. This can lower monthly repayments and allow you to build equity at a faster rate.

Some people also choose to refinance to switch from a variable rate home loan to a fixed rate one or vice versa.

Do I need a lawyer to refinance my mortgage?

To ensure your home loan is legally-binding, your broker or lender will typically enlist a solicitor to prepare your loan documents on their behalf. These are sent to the solicitor for them to review, and back to you to sign.

What documents do you need to refinance your mortgage?

You will need to provide many of the same documents as when you applied for your current mortgage:

  • Proof of identity
  • Proof of income
  • Records of living expenses and debts
  • Your current home loan statement
  • Mortgage documentation

How soon can you refinance?

There’s no minimum term to refinance your home you can do so within the first year.

When’s the best time to refinance your home?

There’s no right or wrong time to refinance your property. But, there a few things to take into consideration to make sure it’s worth the cost and effort at this point in time.

Firstly, look at how much equity you have already built in your property. When you have at least 20% equity in your home you are seen as a lower risk applicant and could score a better deal. Additionally, paying LMI could add thousands and make refinancing futile.

How often should you refinance your house?

Data shows the average Australian refinances their property every four to five years. However, you should only refinance when your current home loan terms are no longer serving you.

Whether you’re buying your first property or want to make the switch, eChoice’s mortgage brokers can help you compare of hundreds of home loans so you can find your perfect fit,


Written by Refinancing.com.au

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