What is a break fee?

To refinance or not to refinance, that is the question. There’s a stack of different reasons for refinancing, but one of the main reasons Aussies refinance is to save some cash. Whether that’s by securing a lower interest rate or cutting the costs and fees associated with having a home loan, saving a few dollars in the short term can add up to even bigger savings in the long run. Before you begin the process of refinancing, it’s worth doing the maths before switching lenders.

What is refinancing?

Refinancing is the process of taking out a new home loan to replace your existing home loan - this could be with your current lender, or with a completely different lender. There are a number of potential benefits when refinancing your home loan including:

• Securing a lower interest rate
• Reducing bank fees
• Consolidating debt
• Tapping into equity
• Accessing new features
• Reducing your loan term

Learn more about refinancing and whether it’s right for you here.

What are the costs associated with closing my current home loan?

While all lenders are different, when it comes to wrapping up your home loan, most include a couple of fees as standard.

Discharge fees

A discharge fee, also known as a termination fee, is the fee your lender charges when you exit a home loan. These fees usually cover the administrative costs associated with closing your current home loan including the paperwork, legal fees and processing.  Discharge fees differ depending on the lender, but they can range from $150 to $500.

Break costs

If you leave a fixed-rate home loan before your term completes, your lender might charge you a break fee. Fixed rate loan terms range from 1 to 5 years, so if you decide to leave before your time’s up, you might be penalised. The break costs are meant to cover any potential losses that your lender could be subject to when you exit early.

While lenders will often have different formulas for calculating the break cost, the calculations usually take into account the below:

• How much time you have left on your fixed term
• The outstanding loan amount
• The difference in interest rate

What are the costs associated with opening a new home loan?

When refinancing to a new lender, there’s also different fees associated with setting up a new home loan.

Establishment or application fees

Some lenders will charge an establishment or application fee when you apply or set up a new home loan with them. This fee helps to cover the administrative costs of setting up a new home loan.

Application fees can range from absolutely nothing up to $1,000, depending on the lender, but some may be willing to waive the fee to try and get you on board. Don’t be afraid to ask the question. The worst that can happen is they’ll say no.

Property valuation fees

There’s no denying that the property market is constantly changing, so a new lender might require a property valuation to get a better idea of the value of your home and how much equity you have. The cost of revaluing a property tends to differ depending on the location of your home and property type. With that said, you can expect a property valuation to set you back anywhere from $100 to $600.

Settlement fees

The final step in the refinancing process involves settling your original home loan and replacing it with a new loan. Settlement fees usually cover the legal and administrative expenses that come with wrapping up your old loan. Depending on the lender, they can range from $100 to $1,000.

Lender’s mortgage insurance

If you purchased your property with less than 20% deposit, chances are you had to take out lender’s mortgage insurance (LMI). If you still haven’t built up at least 20% or more equity in your property, then you could be up for another round of LMI. Unfortunately, LMI doesn’t transfer across lenders, so if you switch to a different lender as part of the refinancing process, then you’ll have to pay it a second time.

Service fees

Some home loans also come with service fees to cover the admin costs of running the accounts - these are usually charged monthly or annually.

Depending on the features and facilities available with your home loan, you might also get charged a fee. For example, if you have a redraw facility, you could get charged for this facility, as well as every time you withdraw money from it. Some lenders also charge an annual fee if you have an offset account attached to your home loan.

It’s important to be aware of the costs associated with switching lenders, so you can include them in your calculations and make an educated decision on whether refinancing is right for you. Everyone’s situation is different, so it’s essential to make a choice that best suits your individual circumstances and needs.

If you’re looking to refinance your home loan, learn more about what Unloan has to offer here.

This article is intended to provide general information only. It does not have regard to the financial situation or needs of any reader and must not be relied upon as financial product advice. Please consider seeking financial advice before making any decision based on this information.‍

Unloan is a division of Commonwealth Bank of Australia.

Applications are subject to credit approval, satisfactory security and you must have a minimum 20% equity in the property. Minimum loan amount $10,000, maximum loan amount $10,000,000, and total borrowings per customer across all Unloan loans is $10,000,000. (For purchase loans a minimum 10% equity is required - however a Lenders Mortgage Insurance (LMI) premium and higher interest rate apply. In some cases, depending on the property’s location or type, an LMI premium may also be required for LVR between 70.01% to 80%). For loans with Lenders Mortgage Insurance (LMI) the minimum loan amount is $10,000, maximum loan amount is $3,000,000 and total borrowings per customer across all Unloan loans is limited to $3,000,000).

Unloan offers a 0.01% per annum discount on the Unloan Live-In rate or Unloan Invest rate upon settlement. On each anniversary of your loan’s settlement date (or the day prior to the anniversary of your loan’s settlement date if your loan settled on 29th February and it is a leap year) the margin discount will increase by a further 0.01% per annum up to a maximum discount of 0.30% per annum. Unloan may withdraw this discount at any time. The discount is applied for each loan you have with Unloan.

*At Unloan, we do not charge any annual, application, banking, account, transaction, late or exit fees. In certain circumstances you may be required to pay a Lenders Mortgage Insurance (LMI) premium. Learn more about why this is applied and how it works. Government fees may also apply. Learn more about government fees here. Your current lender may charge an exit fee when refinancing.