Cost To Refinance Home Loan

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

Last updated on April 27th, 2022 at 10:49 am by Cate Cook

The costs to refinance a home loan explained

How much will it cost to refinance my home loan?

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.

How much will it cost to refinance my home loan?

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:

  • Early exit fees – which can amount to thousands of dollars if a loan is terminated early in the fixed term period
  • Break fees – which can mean the same thing as early exit fees, or can be charged in addition to early exit fees. Early exit and break fees are calculated based on the size of your loan and the loan term you have remaining
  • Switch fees – which a lender may charge if you change from one type of loan to another, but stay with the same lender. Switch fees vary from $200 to $700
  • Discharge fee – which your new lender may charge to cover the cost of closing your old loan and transferring the title and can cost up to about $500
  • Application fees – for establishing your new loan, which can range from $0 to over $650
  • Lenders Mortgage Insurance – which you may have to pay again if you don’t have 20% of the property’s value as a deposit.  The amount of LMI you’ll have to pay depends on the size of your loan and your deposit

How much can I save by refinancing?

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

What other benefits are there to refinancing a home loan?

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:

  • to renovate your home
  • to add new rooms or a second storey to your home
  • to buy a caravan or recreational vehicle or boat
  • to pay school fees or finance a holiday
  • to consolidate other debts (such as credit cards, personal or car loans)

What can I do to minimise the cost to refinance my home loan?

More of your questions about the costs of refinancing home loans

How many times can I refinance my home loan?

There’s no limit to the number of times you can refinance your home loan, with some mortgage experts suggesting you take a look at the costs to refinance your mortgage every couple of years or whenever there’s a substantial change in interest rates.  As mentioned above, though, make sure you’re not paying too great a premium for doing so.

Should I refinance my loan after my introductory rate period ends?

Towards the end of an introductory rate period, it’s often a great idea to consider your options.  This is because they can often revert to a higher variable interest rate than what you may find among other lenders, so it pays to keep an eye on the market.  Find out if there are any exit fees with your current loan and use Savvy to compare loans to see if you can find a better deal.

Is it better overall to stay with the same lender or switch lenders?

That will depend on whether your current lender can offer you a lower interest rate or a different type of loan or more features which better suit your needs.  Always talk to your existing lender before switching.

Do I need a conveyancer or a solicitor to do my refinance paperwork?

No – lenders have an established method of opening, closing and transferring loans between themselves, so you don’t need to hire a conveyancer or solicitor to do this work for you.

Can I refinance to extend my home loan if I wish to reduce my loan repayments?

Yes, you can ask your lender to extend the term of your loan when you refinance, although bear in mind that this will increase the amount of interest you pay over the life of your loan.

Why do some people refinance to an interest-only loan?  

Property investors are permitted to claim the interest portion of their loan as a tax offset, but it’s not permissible to claim the principal portion of a P&I repayment.  Therefore, if the property investor refinances to an interest-only loan, they can claim the full monthly repayment as a tax offset.