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Home loan guide / Refinancing

What it costs to refinance your home loan

6 min read

Caitlyn Smith

Refinancing your home loan can help lower your repayments, but there are some upfront costs and fees that you should consider before signing up for a new loan.

How to refinance your home loanRefinancing your home loan can be a great way to lower your repayments, access equity, pay off your loan quicker, or get extra features that you don’t have right now. When preparing to refinance, it’s important to be aware of the cost that could be incurred in the process. How much it costs is dependent on which lender you are refinancing with. If you’re sticking with the same lender (i.e. an internal refinance) there are typically less fees incurred compared to if you went to a completely new lender (i.e. an external refinance) – but each lender charges differently so it pays to do your research.

On average, staying with the same lender it will cost you roughly between $280 - $2,630, and approximately $790 - $2,960 if you are refinancing to a new lender. Refinancing with Tic:Toc is much cheaper (between $490 - $1,110) because we don’t charge any of our own fees, just government and third party ones. If you’re wondering how we got to these figures, keep reading, we’ll break it all down for you.

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Types of refinance

Internal refinance

Internal refinance is when you are refinancing your home loan with the same lender.

External refinance

External refinance is when you are refinancing your home loan with a different lender to the one that your home loan is currently with.

Let's break it down

Closing the old loan

1. Discharge fee

A discharge fee is a fee your current lender charges you to fully pay out your current loan and prepare the required documentation for doing so. If you are refinancing with the same lender, it is unlikely you will need to pay this fee - but each lender is different.

2. Deregistration fee

When you get a home loan, your lender needs to register your mortgage with the government, and concurrently, your current lender needs to deregister mortgage. The government charges you a fee in order to do this and the amount varies from state to state. As with a discharge fee, it is unlikely that your lender would charge you this fee if you are internally refinancing (again, it depends on the lender).

3. Break costs (if you’ve got a fixed rate)

You’ll need to pay a break cost if you have a fixed rate home loan and want to refinance before the fixed term ends. The formula to work this out is very complicated and the cost varies depending on lots of factors (e.g. your loan amount and interest rate), so it’s best to check with your lender.

4. Switching fees (if you’re sticking with the same lender)

You’ll only need to pay a switching fee if you’re doing an internal refinance. It’s a fee your bank charges for closing off your old loan and opening a new one for a different product. It covers the internal administration and handling costs. Each lender charges differently for this fee, so you’ll need to check with your lender to get an exact cost.

Opening the new loan

Government fees

1. Registration fee

All mortgages must be registered with the government, and the government charges you a fee to do this. Different states charge different amounts, but you’ll be looking around the $120 to $200 mark for this fee.

2. Title search fee

When you apply for a home loan, a title search is performed in order to get the legal details of the property you are taking out the loan for. It is necessary in order to discover any hidden concerns about the property (e.g. encumbrances, caveats) that need to be resolved.

3. Priority notice fee

Priority Notices are lodged with the Land Registry and are used to give notice to the rest of the world about pending transactions that will affect the title of a property. They protect your interests by essentially allowing you to call “dibs” on that property. In NSW, QLD, and VIC you are required to lodge a Priority Notice when refinancing a home loan.

Third party fees

1. Settlement fee

This is a fee you pay to your settlement agent or conveyancing lawyer (on top of any other fees they charge) for their services. At Tic:Toc we use a digital conveyancer who charge lower settlement fees for online settlements, but we also offer non-digital settlements if you feel like going old school.

Lender fees

1. Application fee

This fee is associated with opening a new loan. When you refinance a loan you are closing your old loan and applying for a new one (either with the same lender or with a new one), which means you may need to pay an application fee. The cost of an application fee varies depending on the lender (anywhere from $150 to $700), while Tic:Toc charges no application fee at all

2. Valuation fee

Valuation fees cover the lender’s cost of obtaining an up to date valuation of your property. Your new lender will require an updated valuation in order to determine your Loan-to-value Ratio (LVR) which in turn determines whether Lenders’ Mortgage Insurance (LMI) is necessary. If your new LVR is higher than 80% of the property’s value, you will need to pay LMI. In Tic:Toc’s case, we get a new valuation done for your property, but we don’t charge you a fee for it.

3. Preparation of mortgage docs

Sometimes the document preparation fee is included under other costs (e.g. the application fee or conveyancing fees), which make it one of the least obvious fees. This fee covers the cost of preparing your loan documents for your application, which is why Tic:Toc don’t charge this fee - we do everything online.

4. Ongoing fees

The ongoing fees are the costs that come after you’ve settled your new home loan. They can include things like a monthly servicing fee, redraw costs, annual fees, and extra repayment charges. All these fees can affect the home loan’s comparison rate, so if you see an interest rate with a much higher comparison rate, you can assume that there will be some ongoing fees attached to it. Refinancing can help you ditch some of these fees if your new lender doesn’t charge them, but you could also end up with new ones that you didn’t have with your previous loan, so make sure you research your new lender’s fees before you apply. For example, Tic:Toc doesn’t charge any ongoing fees (we do charge $10 per month for offset accounts, but this is an optional extra for your loan).

To refinance, or not to refinance?

As with most things in life, there is no standard cost for refinancing your loan. It will depend heavily on who you decide to refinance with and who you currently have your loan with, as each lender charges differently (starting to sound like a broken record, aren’t we?). While the upfront cost can be substantial, the savings you get by refinancing to a lower rate can well exceed this cost over time. It’s also equally important to make sure your home loan is meeting all your needs. Your circumstances change over time and the home loan you got when you bought your home, may not be the right one for you anymore – it pays to check!

If you’re thinking of refinancing, check out our rates and loan features here.

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