Homeowners looking to save money on their mortgage often consider refinancing as an option. Refinancing is essentially taking out a new loan to pay off your existing mortgage, usually with a different lender and a new interest rate. The idea behind refinancing is that you’ll save money on your monthly repayments over the long term, but the question remains, what does it cost to refinance a mortgage?
In this article, we’ll take an in-depth look at the costs associated with refinancing a mortgage and what you need to consider before making the switch.
Costs Associated with Refinancing a Mortgage
Application fees
When you apply for a new mortgage, you’ll typically have to pay an application fee. This fee covers the cost of processing your application and conducting a credit check. The amount you’ll pay will depend on the lender and the type of mortgage you’re applying for, but it could be anywhere from $0 to $600 or more.
Legal fees
When you refinance, you’ll also need to engage a lawyer or conveyancer to help with the legal process of transferring the mortgage to your new lender. This cost will vary, but it could be anywhere from $500 to $1,500 or more.
Valuation fees
A new lender will want to know the current value of your property before they approve a new mortgage. You’ll therefore need to pay for a property valuation, which typically costs anywhere from $150 to $600 or more.
Break fees
If you have a fixed-rate mortgage, you may have to pay a break fee if you want to exit the fixed term early. This fee is usually a percentage of the amount you still owe on your mortgage and can run into thousands of dollars.
Early repayment fees
Some lenders will charge an early repayment fee if you pay off your mortgage early, either when you refinance or at any other time. The amount of this fee will depend on your lender and the terms of your mortgage.
How to Save Money When Refinancing
Despite the costs, refinancing can still be a good way to save money on your mortgage if you do it right. Here are a few tips to help you save money when refinancing:
- Shop around Before you refinance, shop around and compare mortgage rates from different lenders. You could save thousands of dollars over the life of your mortgage by choosing a lender with a lower interest rate.
- Consider the long-term savings While refinancing can have upfront costs, the long-term savings on your monthly repayments can be substantial. Be sure to factor in these long-term savings when you’re deciding whether to refinance or not.
- Use a mortgage broker A mortgage broker can help you compare mortgage rates from different lenders and find the best deal for you. Plus, they’ll handle all the paperwork and negotiations, which can save you time and stress.
- Negotiate with your lender If you’re happy with your current lender, you could try negotiating with them to see if they’ll match or beat a better rate you’ve found elsewhere.
Refinancing a mortgage can be a good way to save money on your mortgage, but it’s important to understand the costs involved and how to minimize them. Take the time to shop around, compare rates, and consider the long-term savings before making a decision. If you’re still unsure, speak to a mortgage broker who can help guide you through the process
