Refinancing: the costs to check before you switch

Refinancing can be worthwhile, but it is not free. Before you decide, weigh the costs of switching against the benefit you expect, over the period you expect to keep the new loan.

Costs with your current lender

• Discharge fee: most lenders charge a fee to close your loan.
• Break costs: if you are on a fixed rate, leaving early can be expensive. Ask your lender for a written quote before you decide, as the amount changes over time.

Costs with the new lender

• Application or establishment fee: some lenders charge one and some do not.
• Valuation and settlement fees: these may apply depending on the lender.
• Lenders mortgage insurance: if you owe more than 80 per cent of the property's value, you may need to pay this again. It is not transferable between lenders.

Government charges

Registering a new mortgage and discharging the old one attract government fees, which vary by state and territory.

Look beyond the rate

Compare ongoing fees and the features you actually use, such as an offset account or the ability to make extra repayments. A loan with a slightly higher rate and no annual fee can cost less than one with a lower rate and a package fee, depending on your balance.

Pay attention to the loan term too. Refinancing back to a full-length term can lower your repayments while increasing the total interest you pay over the life of the loan. If the aim is to save interest, keeping the remaining term the same, or continuing your current repayment amount, makes a real difference.

Working out whether it is worth it

Add up the one-off costs of switching and compare them with the expected saving each month. That tells you roughly how long it would take to come out ahead. If you may sell or refinance again before then, staying put could be the better choice.

It is also worth asking your current lender what it can offer before you leave. A loan health check sets all of this out so you can see whether switching makes sense for you.