What fees to expect when refinancing your home loan

The loan application fee is a one-off payment for the set-up of a new home loan which you’ll pay as part of refinancing. Also known as an ‘establishment’, ‘set-up’ or ‘start-up’ fee - you would’ve paid this when establishing your existing home loan.

Just as with your original home loan application, as part of the refinancing process, a lender will value your property. The fee covers the cost of this service, which uses a valuation professional. Sometimes, the valuation fee will be combined into the loan application fee.

Title protection fee protects the buyer from risks such as those associated with fraud, planning defects, unapproved alterations to a property inherited from a previous owner, errors on the part of councils, and plenty more. Title protection fee can help provide peace of mind to customers when refinancing.

Settlement fees are costs incurred to ‘settle’ your new loan. It covers things like accounting and legal fees, and other similar administrative expenses. It may also include the valuation fees – mentioned above.

This is different from the settlement fee. Your previous lender may charge you discharge or exit fees once they have agreed to end your previous home loan agreement as part of the refinancing process.

Home loan exit fees were abolished for loans finalised after 1 July 2011 for variable rate loans, but lenders may still charge a discharge fee to reimburse them for reasonable administrative costs arising from closing out your existing loan.

The loan discharge fee would have been stipulated in the conditions of the loan contract. It’s also useful to remember that discharge fees vary between loan types. Lenders may also charge what is called a ‘break fee’ for ending a fixed rate loan early.

With a fixed rate loan you agree to borrow money for a fixed period of time at a fixed interest rate. If the fixed rate loan is repaid before the end of the fixed rate period, this may cause a loss to your lender, which may be passed on to you as a break fee.

If the fixed rate loan or any part of it is terminated early, break fees could be substantial. This is particularly true if market interest rates have reduced during your fixed rate period. It’s a good idea to ask your lender for an estimate of break costs before you arrange to repay a fixed rate loan early.

When refinancing you’ll be subject to State or Territory government fees. These fees may be twofold: to complete the discharge with your previous home loan and to register your new one. But when refinancing, you may be entitled to reimbursement of some government fees from the relevant government body.

Home loan lenders may charge a monthly administration fee on your home loan. The amount of this fee, or whether this fee is charged at all, may depend on the type of loan. Some lenders may instead charge an annual fee or a package fee.

At the point of refinancing, you may be charged a Lender's Mortgage Insurance (LMI). The cost may be a one-off or may be added into the loan. Generally speaking, the higher your equity in the property, the lower this fee will be, but depending on your risk profile and product type, this fee may be charged regardless of your deposit amount. Find out more about LMI and other risk fees. 

When it comes to refinancing, there are many options available to you. Talk to your mortgage broker, accountant, or a financial adviser before making any refinancing plans.