What fees to expect when refinancing
      your home loan

      Family discusses refinancing loan

       Estimated read time: 3 Minutes

      There are many reasons someone might refinance their home loan. You might need a bit of extra cash to finance a much-needed renovation, or you’ve seen some enticing offers advertised. But when thinking about refinancing your home loan, you should always think about the costs and fees that come with your decision.  

      This guide gives a run-down of the most common refinancing fees you can expect to pay. Although some lenders may not charge these fees. it's important to understand which fees may be payable to decide whether refinancing will benefit you overall. 

      What costs are involved in refinancing a mortgage?

      Loan application fee

      Loan application fee

      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.
      Valuation fee

      Valuation fee

      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 registered valuer. Sometimes, the valuation fee will be combined into the loan application fee.
      Settlement fee

      Settlement fee

      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.
      Discharge fees on existing loan

      Discharge fees on existing loan

      This is different from the settlement fee. Your previous lender may charge you discharge or exit fees once they have agreed to end your 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.

      Fixed loan break fees

      Fixed loan break fees

      With a fixed rate loan you agree to borrow money at a fixed interest rate for an agreed period of time. 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.

      Government fees

      Government fees

      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.
      Monthly administration fees on the new loan

      Monthly administration fees on the new loan

      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.
      Lenders mortgage insurance - lmi

      Lenders mortgage insurance

      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. 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.

      Barry Saoud - Pepper Money General Manager, Mortgages and Commercial Lending

      Contributor | Barry Saoud, General Manager, Mortgages and Commercial Lending

      Barry joined Pepper Money in July 2021 as General Manager, Mortgages and Commercial Lending. He is responsible for the strategic direction and operating performance across product, credit, and settlements for mortgages, commercial loans, personal loans, and direct sales. Read more.

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