What are the major costs of refinancing your home loan?

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on March 28, 2022
What are the major costs of refinancing your home loan?

Refinancing a home loan can be a simple process, yet there are typically a number of upfront costs involved - but is it worth it?


Buying a home or looking to refinance? The table below features home loans with some of the lowest interest rates on the market for owner occupiers.

Lender

Variable
More details
UNLIMITED REDRAWSSPECIAL OFFER
  • Fast turnaround times, can meet 30-day settlement
  • For purchase and refinance, min 20% deposit
  • No ongoing or monthly fees, add offset for 0.10%
UNLIMITED REDRAWSSPECIAL OFFER

Smart Booster Home Loan Discounted Variable - 2yr (LVR < 80%)

  • Fast turnaround times, can meet 30-day settlement
  • For purchase and refinance, min 20% deposit
  • No ongoing or monthly fees, add offset for 0.10%
Variable
More details
100% FULL OFFSET ACCOUNTNO APPLICATION FEE OR ONGOING FEES
  • No upfront or ongoing fees
  • 100% full offset account
  • Extra repayments + redraw services
100% FULL OFFSET ACCOUNTNO APPLICATION FEE OR ONGOING FEES

Low Rate Home Loan - Prime (Principal and Interest) (Owner Occupied) (LVR < 60%)

  • No upfront or ongoing fees
  • 100% full offset account
  • Extra repayments + redraw services
Variable
More details
ZERO APPLICATION FEESFEE FREE OFFSET
  • We lower your rate based off how much you’ve paid down your loan
  • Automatic rate match
  • No upfront or ongoing fees
  • The shorter your loan, the less interest you pay in the long run.
ZERO APPLICATION FEESFEE FREE OFFSET

Owner Occupier Accelerates - Celebrate (LVR < 60%) (Principal and Interest)

  • We lower your rate based off how much you’ve paid down your loan
  • Automatic rate match
  • No upfront or ongoing fees
  • The shorter your loan, the less interest you pay in the long run.
Variable
More details
AN EASY DIGITAL APPLICATION
  • No ongoing fees - None!
  • Unlimited additional repayments
  • Easy online application, find out if you're approved quick!
  • Redraw- Access your additional payments if you need them
  • Use the app to get loan insights to help you pay off your home loan faster
AN EASY DIGITAL APPLICATION

Neat Variable Home Loan (Principal and Interest) (LVR < 60%)

  • No ongoing fees - None!
  • Unlimited additional repayments
  • Easy online application, find out if you're approved quick!
  • Redraw- Access your additional payments if you need them
  • Use the app to get loan insights to help you pay off your home loan faster
Variable
More details
NO APPLICATION FEES
  • No ongoing fees - None!
  • Unlimited additional repayments
  • Easy online application, find out if you're approved quick!
  • Redraw- Access your additional payments if you need them
  • Use the app to get loan insights to help you pay off your home loan faster
NO APPLICATION FEES

Yard Home Loan (Principal and Interest) (LVR < 80%)

  • No ongoing fees - None!
  • Unlimited additional repayments
  • Easy online application, find out if you're approved quick!
  • Redraw- Access your additional payments if you need them
  • Use the app to get loan insights to help you pay off your home loan faster
Variable
More details
NO UPFRONT OR ONGOING FEES
  • No ongoing fees - None!
  • Unlimited additional repayments
  • Easy online application, find out if you're approved quick!
  • Redraw- Access your additional payments if you need them
  • Use the app to get loan insights to help you pay off your home loan faster
NO UPFRONT OR ONGOING FEES

Owner Occupier Accelerates - Evaporate (LVR 60%-70%) (Principal and Interest)

  • No ongoing fees - None!
  • Unlimited additional repayments
  • Easy online application, find out if you're approved quick!
  • Redraw- Access your additional payments if you need them
  • Use the app to get loan insights to help you pay off your home loan faster
Variable
More details
NO UPFRONT OR ONGOING FEES
  • No ongoing fees - None!
  • Unlimited additional repayments
  • Easy online application, find out if you're approved quick!
  • Redraw- Access your additional payments if you need them
  • Use the app to get loan insights to help you pay off your home loan faster
NO UPFRONT OR ONGOING FEES

Low Rate Home Loan - Prime (Principal and Interest) (Owner Occupied) (LVR < 80%)

  • No ongoing fees - None!
  • Unlimited additional repayments
  • Easy online application, find out if you're approved quick!
  • Redraw- Access your additional payments if you need them
  • Use the app to get loan insights to help you pay off your home loan faster
Variable
More details
UNLIMITED EXTRA REPAYMENTS
UNLIMITED EXTRA REPAYMENTS

Basic Home Loan (Principal and Interest) (LVR < 60%)

    Variable
    More details
    EASY DIGITAL APPLICATION
    EASY DIGITAL APPLICATION

    Neat Variable Home Loan (Principal and Interest) (LVR 70%-80%)

      Variable
      More details
      $0 APPLICATION FEE
      $0 APPLICATION FEE

      Budget Home Loan (Principal and Interest) (LVR < 80%)

        Variable
        More details
        100% FULL OFFSET ACCOUNT
        100% FULL OFFSET ACCOUNT

        Offset Package Home Loan (Principal and Interest) (LVR < 60%)

          Variable
          More details
          LIMITED TIME OFFER
          • Fast turnaround times, can meet 30-day settlement
          • No ongoing or monthly fees, add offset for 0.10%
          • Extra repayments + redraw services
          LIMITED TIME OFFER

          Smart Booster Home Loan Discounted Variable - 1yr

          • Fast turnaround times, can meet 30-day settlement
          • No ongoing or monthly fees, add offset for 0.10%
          • Extra repayments + redraw services

          Base criteria of: a $400,000 loan amount, variable, fixed, principal and interest (P&I) home loans with an LVR (loan-to-value) ratio of at least 80%. However, the ‘Compare Home Loans’ table allows for calculations to be made on variables as selected and input by the user. All products will list the LVR with the product and rate which are clearly published on the Product Provider’s web site. Monthly repayments, once the base criteria are altered by the user, will be based on the selected products’ advertised rates and determined by the loan amount, repayment type, loan term and LVR as input by the user/you. *The Comparison rate is based on a $150,000 loan over 25 years. Warning: this comparison rate is true only for this example and may not include all fees and charges. Different terms, fees or other loan amounts might result in a different comparison rate. Rates correct as of June 25, 2022. View disclaimer.


          Why should you refinance your mortgage?

          One of the most common motivations among Aussie homeowners for refinancing is to take advantage of a lower interest rate, especially in today’s competitive home loan market. This isn’t surprising, given that a lower rate could save you thousands in interest repayments every year. Research conducted by property exchange network PEXA detailed nearly 364,000 Australians refinanced their home loans in 2021, up 27.9% on 2020. The Australian Competition and Consumer Commission (ACCC) has said the average borrower could save $17,000 in interest just by switching to a new loan. 

          Refinancing doesn't just happen at the click of a button, it requires some leg work on your own behalf. The level of savings generated through refinancing depends amongst other things on the size of your mortgage, how many years left on the loan term and how much lower the new interest rate is compared to your current rate.

          This needs to be considered alongside the initial costs of refinancing to help you determine whether it’s worth it. These upfront costs to refinance a mortgage can vary depending on the lender and the type of refinancing.

          Generally, there are two main types of home loan refinance:

          • External refinance: When you move your loan to another financial lender
          • Internal refinance: When you refinance your home loan with your existing lender

          Refinancing with your existing lender, for instance, might save you some of the additional fees associated with changing lenders, such as exit, valuation and application fees.

          Costs of refinancing a home loan

          There are a variety of fees that can add to the upfront costs of refinancing a home loan. The costs of these different fees and indeed whether they are even charged at all will depend on the lender. When assessing the cost of refinancing, it’s important to calculate the total cost of changing as opposed to comparing individual fees between different lenders. For example, some lenders may waive application fees, but charge higher ongoing fees instead.

          See also: Summary of all home loan fees

          Some of the typical upfront refinancing fees you might come across are explained below, along with high-level indicative costs.

          Mortgage application fee

          If you’re refinancing externally with another lender, you may be required to pay an application fee. Also known as an ‘establishment’ fee or just an upfront fee, this is a one-off payment to set up the refinanced home loan and cover the administration costs. Some lenders may include the costs of valuation in their application fee.

          The average mortgage application fee is around $250, while the highest can be as much as $800-$1,000. 

          The table below displays a selection of owner-occupier (OO) home loans with a $0 upfront fee, sorted by interest rate (ascending).

          Lender

          Variable
          More details
          ZERO APPLICATION FEESFEE FREE OFFSET
          • We lower your rate based off how much you’ve paid down your loan
          • Automatic rate match
          • No upfront or ongoing fees
          • The shorter your loan, the less interest you pay in the long run.
          ZERO APPLICATION FEESFEE FREE OFFSET

          Owner Occupier Accelerates - Celebrate (LVR < 60%) (Principal and Interest)

          • We lower your rate based off how much you’ve paid down your loan
          • Automatic rate match
          • No upfront or ongoing fees
          • The shorter your loan, the less interest you pay in the long run.
          Variable
          More details
          NO ONGOING FEESFREE REDRAW FACILITY
          • Rate Match Guarantee. Tic:Toc will match the rate on identical variable P&I home loans. T&C's Apply.
          NO ONGOING FEESFREE REDRAW FACILITY

          Live-in Variable Loan (Principal and Interest) (LVR < 90%)

          • Rate Match Guarantee. Tic:Toc will match the rate on identical variable P&I home loans. T&C's Apply.
          Variable
          More details
          100% FULL OFFSET ACCOUNTNO APPLICATION FEE OR ONGOING FEES
          • No upfront or ongoing fees
          • 100% full offset account
          • Extra repayments + redraw services
          100% FULL OFFSET ACCOUNTNO APPLICATION FEE OR ONGOING FEES

          Low Rate Home Loan - Prime (Principal and Interest) (Owner Occupied) (LVR < 60%)

          • No upfront or ongoing fees
          • 100% full offset account
          • Extra repayments + redraw services
          Variable
          More details
          • No upfront or ongoing fees
          • 100% full offset account
          • Extra repayments + redraw services

          Variable Owner Occupied, Principal and Interest (LVR < 80%)

          • No upfront or ongoing fees
          • 100% full offset account
          • Extra repayments + redraw services

          Base criteria of: a $400,000 loan amount, variable, fixed, principal and interest (P&I) home loans with an LVR (loan-to-value) ratio of at least 80%. However, the ‘Compare Home Loans’ table allows for calculations to be made on variables as selected and input by the user. All products will list the LVR with the product and rate which are clearly published on the Product Provider’s web site. Monthly repayments, once the base criteria are altered by the user, will be based on the selected products’ advertised rates and determined by the loan amount, repayment type, loan term and LVR as input by the user/you. *The Comparison rate is based on a $150,000 loan over 25 years. Warning: this comparison rate is true only for this example and may not include all fees and charges. Different terms, fees or other loan amounts might result in a different comparison rate. Rates correct as of June 25, 2022. View disclaimer.

          Property valuation fee

          Depending on the level of equity you have in your property, a new lender may require a valuation to be done before deciding to let you refinance with them. The valuation fee often depends on the lender and the location of the property. For example, valuation fees tend to be higher for rural properties compared to those in more urban areas (usually due to simple practicalities including additional travel time required to get to the property).

          A valuation can cost up to $775, while the average is somewhere around $200. These fees can be as little as $50, while there are plenty that don't charge one or simply include it in the application fee. 

          Discharge fee for termination of mortgage

          Also known as a ‘termination’ fee, mortgage discharge fees are applicable to an external refinance, where your existing lender may require you to pay discharge fees to cover the administrative costs required to end the loan contract.

          The average discharge fee can be up to $1,000, but typically sit around $200-$400 on average. 

          The table below shows home loans with some of the lowest interest rates on the market that also have $0 discharge fees:

          Lender

          Variable
          More details
          100% FULL OFFSET ACCOUNTNO APPLICATION FEE OR ONGOING FEES
          • No upfront or ongoing fees
          • 100% full offset account
          • Extra repayments + redraw services
          100% FULL OFFSET ACCOUNTNO APPLICATION FEE OR ONGOING FEES

          Low Rate Home Loan - Prime (Principal and Interest) (Owner Occupied) (LVR < 60%)

          • No upfront or ongoing fees
          • 100% full offset account
          • Extra repayments + redraw services
          Variable
          More details
          ZERO APPLICATION FEESFEE FREE OFFSET
          • We lower your rate based off how much you’ve paid down your loan
          • Automatic rate match
          • No upfront or ongoing fees
          • The shorter your loan, the less interest you pay in the long run.
          ZERO APPLICATION FEESFEE FREE OFFSET

          Owner Occupier Accelerates - Celebrate (LVR < 60%) (Principal and Interest)

          • We lower your rate based off how much you’ve paid down your loan
          • Automatic rate match
          • No upfront or ongoing fees
          • The shorter your loan, the less interest you pay in the long run.
          Variable
          More details
          • We lower your rate based off how much you’ve paid down your loan
          • Automatic rate match
          • No upfront or ongoing fees
          • The shorter your loan, the less interest you pay in the long run.

          Variable Owner Occupied, Principal and Interest (LVR < 80%)

          • We lower your rate based off how much you’ve paid down your loan
          • Automatic rate match
          • No upfront or ongoing fees
          • The shorter your loan, the less interest you pay in the long run.

          Base criteria of: a $400,000 loan amount, variable, fixed, principal and interest (P&I) home loans with an LVR (loan-to-value) ratio of at least 80%. However, the ‘Compare Home Loans’ table allows for calculations to be made on variables as selected and input by the user. All products will list the LVR with the product and rate which are clearly published on the Product Provider’s web site. Monthly repayments, once the base criteria are altered by the user, will be based on the selected products’ advertised rates and determined by the loan amount, repayment type, loan term and LVR as input by the user/you. *The Comparison rate is based on a $150,000 loan over 25 years. Warning: this comparison rate is true only for this example and may not include all fees and charges. Different terms, fees or other loan amounts might result in a different comparison rate. Rates correct as of June 25, 2022. View disclaimer.

          Break cost

          If you currently have a fixed rate home loan and you want to refinance before the end of the fixed term, you’ll have to pay break fees. These fees cover any potential losses your current lender might face due to the ‘economic cost’ of that agreement not running to its originally slated term.

          Break costs can be somewhat complicated to calculate, but they generally depend on the loan amount, the fixed rate compared to the current variable market rate and the length of time remaining on the fixed term. Typically, break fees will be higher if interest rates have gone down since the start of the fixed term. The average cost to break a mortgage can be many thousands of dollars, and always get a definitive answer from your lender as to exactly what it will be. An example Savings.com.au found was a customer being charged a break fee of $35,000

          Settlement fee

          Settlement fees are paid to a new lender to settle the new loan. They are typically used to cover the costs of arranging for a legal representative of the lender to attend the loan settlement with you and your conveyancer or solicitor.

          The average cost to settle a home loan can be about $210, but they're commonly between $100 and $400. The highest is as much as $800. 

          Mortgage registration fees

          A mortgage registration fee is charged by the State Government for the mortgage to be added to a register to prevent you from selling the property without paying back the lender. The registration fee can cost anywhere between $100 and $180 on average (varies by state and territory).

          Exit fees

          Following government reforms, lenders have been banned from charging early exit fees on loans taken out after 1 July 2011. However, lenders may still charge exit fees on loans taken out before this date. This cost can range between $0 and $7,000. You'll need to check the terms of your existing loan with your lender to find out if an exit fee still applies to you.

          Time and effort

          Time is money, and it takes time to compare home loans and fully assess the terms and conditions between different products. The 2020 St. George Home Buying Survey found buyers spent 44 hours looking for their first property before even undertaking the home buying process! 

          This cost depends on how much you value your time. Home loan pre-approval can potentially save you some of that time. 

          Savings.com.au’s two cents

          The number and magnitude of refinancing costs outlined above might seem daunting, but it’s important that they’re considered within the context of the long-term savings that can be generated by refinancing your home loan to a lower interest rate. Depending on your circumstances, you may even be able to recoup these costs after just a small number of monthly repayments. 

          Make sure that you are thorough in working out which ‘change’ costs apply to you from both your existing lender as well as your possible new lender, so that you can come up with a definitive amount of ‘cost’ with which to compare your likely savings from your improved interest rate from your new lender.


          Image by Pixabay via Pexels. 

          Disclaimers

          The entire market was not considered in selecting the above products. Rather, a cut-down portion of the market has been considered. Some providers' products may not be available in all states. To be considered, the product and rate must be clearly published on the product provider's web site. Savings.com.au, yourmortgage.com.au, yourinvestmentpropertymag.com.au, and Performance Drive are part of the Savings Media group. In the interests of full disclosure, the Savings Media Group are associated with the Firstmac Group. To read about how Savings Media Group manages potential conflicts of interest, along with how we get paid, please visit the web site links at the bottom of this page.

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          author-avatar
          Dominic Beattie is the Editor of Savings.com.au. He has been publishing articles on finance, business and economics since 2015, having previously worked at financial research firm and comparison site Canstar before helping to launch Savings.com.au in November 2018. Dominic's commentary has featured in various news outlets, including: Channel 7 News, News.com.au, Yahoo Finance Australia, Domain, Realestate.com.au, Daily Mail and Radio 2NURFM.

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