Before jumping into refinancing, there are a few important factors that you should consider. Refinancing can save you money but there are costs involved. You need to weigh up these costs against the benefits of refinancing
When you refinance, the new bank may charge you a range of different fees. Things you should look into are:
Loan Application Fee – this is a fee the bank charges for setting up a new loan for you.
Valuation Fee – depending on the bank, you may get charged to pay for the valuation of your house.
Settlement Fee – your lender may charge a fee for the payout on your current mortgage.
Package Fee – most banks are offering Packages where you pay an annual fee for various benefits/discount, the problem is you may have already just paid the annual fee with your current bank.
Exit Fee – your current lender may charge exit fees – sometimes called ‘early repayment fees’ or ‘deferred establishment fees’. Exit fees vary widely though they usually only apply if you have had your current loan for less than five years.
Stamp Duty – Some States charge stamp duty on your mortgage (if you increase the size of your loan) plus a mortgage transfer fee.
You should also be aware that if your current loan is greater than 80% of the current market value of the property then the new bank will also charge you a new set of ‘Lender’s Mortgage Insurance’ fee. LMI involves a one-off premium, which you may be able to capitalise (add it to your loan balance) but this can mean paying interest on the premium, which adds to the cost.
Therefore whilst refinancing might be a good idea because of lower rates, you need to factor in the above potential costs when making the decision to see if there is an actual ‘benefit’ of refinancing even when you have added the costs.
Jerone is a local young Filipino professional with 10 years experience in the accounting/finance/banking industry. He walks the talk as he is a successful avid property investor. Jerone encourages anyone to contact him regarding questions pertaining to finance, e-mail us at Jerone.BALAGTAS@suncorp.com.au.