Top Tips to Understand Refinancing Costs

Refinancing your mortgage costs between $500 and $1,500 in most cases, though the exact figure depends on your lender, loan size, and whether you're switching institutions.

The decision to refinance usually comes down to whether the money you'll save outweighs what you'll pay to make the switch. That calculation sounds straightforward, but many borrowers underestimate the upfront costs or forget about fees that only appear at settlement. Understanding exactly what you'll pay, and when, helps you work out whether refinancing makes financial sense for your situation.

What You'll Pay to Discharge Your Current Loan

Your current lender will charge a discharge fee when you refinance, typically between $150 and $400. This covers the administrative work involved in removing the mortgage from your property title and releasing their security interest. Some lenders also charge a settlement fee on top of the discharge fee, which can add another $150 to $300. These costs are deducted from your loan at settlement, so you won't need to pay them upfront, but they do reduce the amount you'll receive or increase what you need to borrow.

If you're coming off a fixed rate period before the term ends, break costs can run into thousands of dollars depending on how much time remains and how far rates have moved since you locked in. Most lenders calculate break costs based on the difference between your fixed rate and the current wholesale rate for the remaining period. If rates have dropped since you fixed, you'll pay the lender for the interest income they're losing. If rates have risen, break costs are usually zero.

Application and Valuation Fees with Your New Lender

Most lenders charge an application fee when you refinance, ranging from $0 to $600. Some lenders waive this fee as part of a refinance offer, particularly if you're bringing across a decent loan amount. It's worth asking whether the fee can be waived or negotiated, especially if you're refinancing a loan above $400,000.

The lender will also organise a property valuation to confirm your home's current value, which determines your loan-to-value ratio and whether you'll need to pay lender's mortgage insurance. Valuation fees typically cost between $200 and $400, though some lenders cover this cost themselves during refinance campaigns. The valuation protects the lender, but it also gives you a current market assessment of your property, which can be useful if you're planning to access equity or understand your borrowing capacity.

Legal and Settlement Costs When Refinancing

You'll need to cover legal fees for the new mortgage documents, usually between $300 and $800 depending on whether you use a solicitor or conveyancer and how complex the transaction is. This includes preparing the mortgage, registering it on the title, and handling settlement between your old and new lender.

Some lenders offer a settlement service as part of the refinance package, which can reduce the legal costs or bundle them into a single fee. If you're refinancing to consolidate debt or access equity at the same time, the legal work becomes more involved and costs can increase by a few hundred dollars.

Consider a borrower refinancing a $450,000 mortgage in Morley who wants to consolidate $30,000 in personal loans into the home loan. The application fee was waived, but they paid $350 for a valuation, $380 to discharge the old loan, $600 for legal work including the equity release, and $220 in miscellaneous registration and title search fees. Total upfront cost came to $1,550, which they added to the new loan balance. The refinance dropped their interest rate by 0.7%, saving around $3,200 in interest over the first year, so the costs were recovered in under six months.

Lender's Mortgage Insurance If Your Equity Has Dropped

If your loan-to-value ratio is above 80% when you refinance, you may need to pay lender's mortgage insurance again. This can happen if property values have dropped since you purchased, or if you're accessing additional equity that pushes your borrowing above the 80% threshold.

LMI premiums vary based on your loan amount and deposit size, but they typically range from $2,000 to $15,000 for refinances with less than 20% equity. The premium is usually added to your loan balance rather than paid upfront, but it still increases your total borrowing and the interest you'll pay over time. If you're close to 80% equity, it's worth checking whether waiting a few more months to pay down the loan or for property values to recover would help you avoid the LMI charge entirely.

When Refinancing Costs Are Covered by the Lender

Some lenders run refinance offers that cover certain costs such as application fees, valuation fees, or settlement costs up to a capped amount. These offers usually require you to borrow a minimum loan amount, typically $250,000 or more, and sometimes include cashback incentives of $2,000 to $4,000 on top of waived fees.

Cashback offers can look attractive, but they're often tied to loans with slightly higher interest rates, clawback clauses if you refinance again within two to four years, or restrictions on features like offset accounts. A loan health check helps you compare the total cost of the loan over the time you expect to hold it, rather than just focusing on the upfront incentive.

Ongoing Account Fees After You Refinance

Once your refinance settles, you'll start paying the monthly or annual account fees attached to your new loan. Package fees for loans with offset accounts and other features typically cost between $300 and $400 per year. If your current loan doesn't have an annual fee and your new one does, that's an extra cost to factor into your comparison.

Some borrowers refinance to access lower interest rates but end up paying more in account fees, which eats into the savings. If you're refinancing to reduce your rate, check whether the rate difference is large enough to cover any increase in ongoing fees. A difference of 0.3% in interest rates might save you $1,200 a year on a $400,000 loan, but if the new loan has a $395 annual package fee and your old loan had none, your actual saving is closer to $800.

Refinancing costs are part of the transaction, but they shouldn't stop you from moving if the numbers make sense. If you're stuck on a high rate or missing features you need, the upfront cost is usually recovered within the first year through interest savings or improved cash flow. Call one of our team or book an appointment at a time that works for you, and we'll walk through the numbers specific to your situation.

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