If you're wondering whether refinancing is worth the hassle, the cost is usually the first thing that gives people pause. The good news: refinancing a standard home loan typically costs between $400 and $1,500 in upfront fees, and often less once you account for lender incentives. That's a small price if it saves you thousands in interest over the life of your loan.
Here's exactly what you're likely to pay, what you can avoid, and how to work out if it's worth it for your situation.
What You Need to Know
Refinancing costs fall into three groups: fees your current lender charges you to leave, fees your new lender charges you to join, and government fees to update the paperwork. Most of these are fixed and predictable. The one that can catch people out is a break cost, and that only applies if you're on a fixed rate.
Fees Your Current Lender May Charge
Discharge fee. This covers the admin of closing out your existing loan. The big banks typically charge around $350, while some lenders charge as little as $160. It's a fixed cost regardless of your loan size.
Break costs (fixed rate loans only). If you're on a fixed rate and refinance before the fixed term ends, your lender can charge a break cost to cover their loss. This is the one fee that isn't predictable. Depending on how far into your fixed term you are and how rates have moved since you locked in, it can range from a few hundred dollars to several thousand. If you're on a fixed rate, it's worth getting this figure from your lender before you commit to switching.
If you're on a variable rate, none of this applies to you. You can move without a break cost.
Fees Your New Lender May Charge
Application or establishment fee. Some lenders charge up to $600 to set up your new loan, though many waive this entirely for refinances as a way to win your business.
Valuation fee. Your new lender needs to value your property, which can cost up to $300. Like the application fee, this is frequently waived.
Lenders Mortgage Insurance (LMI). This only applies if you're borrowing more than 80% of your property's value on the new loan. If your equity has grown since you bought, this usually isn't a factor. If it is, LMI can add a meaningful amount to your costs, so it's worth checking your loan-to-value ratio before you refinance.
Government Fees
Refinancing means registering the discharge of your old mortgage and the registration of your new one with your state's land titles office. These are small, fixed fees, generally under $200 each, and are non-negotiable regardless of which lender you use.
How to Offset the Cost
Many lenders offer cashback deals to attract refinancers, typically between $1,000 and $4,000 depending on your loan size and the lender. In plenty of cases, this cashback covers your entire refinancing cost and leaves you ahead before you've even factored in the savings from a better rate.
The catch is that cashback offers usually come with conditions, like a minimum loan amount or a maximum loan-to-value ratio, and they shouldn't be the only reason you choose a lender. A slightly lower cashback with a genuinely better rate and features will usually win out over the life of the loan.
Is It Actually Worth It?
For most homeowners, yes. If refinancing costs you $800 to $1,200 and moves you to a rate that's even 0.5% lower on a $600,000 loan, you're looking at savings of over $2,500 a year in interest. The upfront cost is typically recovered within the first few months.
The exception is if you're on a fixed rate with a large break cost, or if you're planning to sell or pay off your loan soon. In those cases, the maths might not stack up, and that's worth knowing before you start the process, not after.
Get a Straight Answer Before You Switch
The only way to know if refinancing is worth it for you is to run the numbers on your actual loan, your actual rate, and your actual situation. That's what we do before we recommend anything, not after.
If you're not sure whether the savings outweigh the cost, book a free call with Swish and we'll check before we advise.
