18 Nov 2015 | Thinking About Refinancing? What You should Know
With interest rates at all time lows and lenders keen to attract new customers, now appears to be as good a time as ever to review your home loan and lock in a lower monthly repayment.
When assessing whether it makes financial sense to refinance or not you should consider more than just the interest rate as fees can quickly erode any potential saving.
HOW LONG ARE YOU PLANNING ON STAYING IN YOUR HOME?
If you plan on moving due to a growing family or you’re empty nesters looking to downsize in the near future, the costs involved with refinancing may outweigh the benefits. You should take into account any fees associated with refinancing but what fees are there to worry about?
With Deferred Exit Fees (DEF) abolished there are three general categories of fees you should be aware of.
Most banks will charge a discharge fee when you sell or refinance your loan. This fee can range from $200 – $400 and should be factored into any refinance calculations. A settlement fee for arranging funding for your loan can be charged from your incoming lender. The settlement fees can cost up to $200. Title Search Fees can be absorbed by the lender or passed on to the borrower. You can expect to pay up to $50 for each title search. Loan approval fees are charged by the lender for approving your loan. Depending on the type of loan you apply for this could be waived (usually for an annual package fee) or cost up to $600.
Something that is often overlooked for package customers is the timing of your annual fee – if this is approaching it is often the best time to review a switch and try to do so before the next fee is charged.
Mortgage registration and de-registration fees are determined by State Governments and vary between each State and Territory. In Victoria for example, to register and de-register a mortgage the fee is $111.00. This fee is usually charged in duplicate ($222) when refinancing.
THIRD PARTY FEES
Lenders will generally pass on third party fees accrued when companies are engaged to facilitate settlements. This is usually the bank’s solicitor though could also include valuation fees or mortgage insurance.
IS IT WORTH IT?
Now you can calculate the total switch costs, annual savings on interest, recovery time to recoup fees and the total saving over the term of the loan. With this information, you can calculate the actual monetary benefit of switching and make a decision on whether it is worthwhile. MCP offer a Refinance Comparison Calculator at our website http://mcpgroup.com.au/services/finance-broking/so you can run your own calculations.
Ensure you consider the loan term and if you start a new 30 period you may lose the benefit of any interest savings. Keep the same loan term or plan on making repayments at the previous level to take full advantage of the lower interest rate and you will be on your way to being debt free sooner than you think.
It is not unusual for “switch” costs to amount to $700 – $1,000 on a typical mortgage. Some lenders are running switch cost campaigns where they may rebate some of the switch costs to incentivise you to refinance.