Refinancing Application Fees and How to Manage Them

If you're thinking about refinancing your home loan on the Central Coast, you've probably already started comparing refinance rates and working out how much you could save. But there's one aspect that often catches people off guard - refinancing application fees.

While mortgage refinancing can help you access a lower interest rate, improve cashflow, or unlock equity in your property, it's important to understand the costs involved upfront. Let's break down what you might pay during the refinance process and how to approach these fees smartly.

What Are Refinancing Application Fees?

When you apply to refinance your mortgage, lenders typically charge various fees to process your application. These can include:

• Application fees (sometimes called establishment fees)
• Valuation fees for your property valuation
• Settlement fees
• Legal fees
• Discharge fees from your current lender
• Registration fees

The total can add up to anywhere from $500 to $3,000 or more, depending on your lender and loan amount. That's why it's crucial to factor these costs into your calculations when deciding whether to refinance.

Are These Fees Worth Paying?

This is the million-dollar question - or at least the few-thousand-dollar question! The answer depends entirely on your situation.

Let's say you're stuck on a high rate after your fixed rate period ending, and you can potentially access a lower interest rate by refinancing. If you're currently paying 6.5% and can switch to a variable interest rate of 5.8%, you could save thousands over the life of your loan.

For example, on a $500,000 loan amount, that 0.7% difference could save you around $3,500 per year in interest. Even if you pay $2,000 in refinance application fees, you'd break even in about seven months and continue saving afterwards.

When Refinancing Makes Sense Despite the Fees

There are several scenarios where paying refinancing application fees is absolutely worth it:

Coming Off a Fixed Rate

If your fixed rate expiry is approaching and your lender's revert rate is significantly higher than what's available elsewhere, refinancing can help you lock in a rate that works for your budget.

Accessing Equity

When you want to access equity for investment or release equity to buy the next property, the fees involved in a cash out refinance are often minor compared to the value you're unlocking from your property.

Consolidating Debt

If you're looking to consolidate into your mortgage - perhaps combining personal loans or credit card debt - the application fees are usually outweighed by the interest you'll save by moving high-interest debts into your lower home loan interest rate.

Switching Loan Features

Sometimes you're paying too much interest because your current loan lacks features like a refinance offset account or refinance redraw facility. These features can significantly improve your cashflow and reduce loan costs over time.

How to Minimise Refinancing Application Fees

While some fees are unavoidable, there are ways to reduce what you pay:

1. Shop around: Different lenders charge different fees. Some may waive application fees as part of promotional offers.

2. Negotiate: Don't be afraid to ask your new lender if they'll reduce or waive certain fees, especially if you're bringing across a substantial loan amount.

3. Consider your current lender: Sometimes your existing lender will offer you a lower interest rate if you threaten to move your mortgage elsewhere - and you'll avoid most refinancing fees altogether.

4. Factor fees into your loan: Many lenders allow you to capitalise these costs into your new loan, spreading the payment over time rather than requiring upfront cash.

5. Get a loan health check: Before committing to refinancing, have someone review your current situation to ensure the numbers actually work in your favour.

The Hidden Costs to Watch For

Beyond the obvious refinance application fees, keep an eye out for:

• Break fees if you're leaving a fixed interest rate early
• Ongoing fees on your new loan (monthly or annual fees)
• Higher interest rates that might apply after an introductory period
• Loss of benefits from your current lender (like fee-free transaction accounts)

Don't Forget the Discharge Process

Your current lender will charge a discharge fee when you move your mortgage - typically between $150 and $400. They might also charge administration fees for processing the discharge. These costs should be factored into your refinancing calculations.

Getting Professional Help

The refinance process involves more than just comparing refinance rates online. A mortgage broker can help you understand the complete picture, including all fees, potential savings, and whether refinancing aligns with your financial goals.

At Coco Finance Broking, we work with clients across Terrigal and the broader Central Coast to conduct thorough loan reviews and identify opportunities to save money refinancing. We'll help you understand exactly what you'll pay in application fees and whether the move makes financial sense for you.

Making Your Decision

Before you start your refinance application, ask yourself:

• How long do I plan to keep this property?
• What will I save each month with a lower rate?
• How long will it take to recover the application fees?
• Are there better features available that will improve my financial position?
• Am I trying to access equity, and is now the right time?

If the numbers stack up and you'll recover your costs within 12-24 months, refinancing is often a smart move. If you're planning to sell soon or the savings are marginal, it might be worth holding off.

Refinancing application fees shouldn't scare you away from potentially accessing a better interest rate or unlocking the equity in your property. But they do need to be part of your decision-making process. With the right guidance and a clear understanding of the costs involved, you can make an informed choice about whether now is the right time to refinance your home loan.

If your fixed rate is expiring or you simply want to understand your options, call one of our team or book an appointment at a time that works for you. We'll run through the numbers together and help you determine whether refinancing makes sense for your situation.