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The ‘hidden’ $2,082 cost of refinancing for a top-up and how property investors can avoid it

Dec 2, 2021 |ALISON CHEUNG

When it comes to working out the cost of refinancing a home loan for a top-up, many people focus on the interest rate but forget that refinancing involves a stack of other costs.

Exactly how much top-up refinancing will set you back in ‘hidden costs’ depends on your situation and your lender. To give you a general idea, these costs average out to be $2,082. On top of this, there are potential break fees and lenders’ mortgage insurance (LMI) which each run into tens of thousands of dollars. Read on for a breakdown of these costs.

Why do the hidden costs make top-up refinancing a bad idea?

While often overlooked, the hidden costs of refinancing can add up, which can see your expenses skyrocket. On top of this, these costs are generally charged upfront.

If you were refinancing to take advantage of a lower interest rate, you may be able to recoup the costs over time through the long-term savings, so it might make financial sense.

But if you’re a property investor seeking access to funds, these costs mean top-up refinancing just doesn’t stack up for you.

Unlike traditional lenders, Futurerent only charges one fixed cost. This cost remains the same throughout the repayment term, even if paid off early or extended.

What are the hidden costs of refinancing a home loan for a top-up?

To give you some perspective of the scale of these hidden costs, we’ve put together a breakdown of the most common refinancing fees, with an estimate of how much they could cost.

These costs will vary depending on what your circumstances are and which lender you’re with. Sometimes the bank may cover or waive certain costs, but in other cases they won’t be as flexible. To find out exactly what you’d need to pay, it’s best to speak with your lender.

Estimated total range: $990 - $3,175

Average: $2,082 (plus interest)

Note that this average cost is conservative as it excludes interest payments and any potential break fees or LMI charges.

Put simply, if you’re refinancing to access an extra $30,000, be prepared to pay 6.9% ($2,082) of that in fees upfront, in addition to the interest payments, any break costs and LMI.

What if you’re on a fixed interest rate or your loan-to-value ratio is high?

You might be in for a rude shock. Banks require you to pay a break fee if you refinance during a fixed-rate term. If your LVR is above 80%, you’ll generally be charged with LMI when refinancing. While the numbers obviously depend on your situation, break fees and LMI will each probably set you back tens of thousands of dollars.

  • Break fees – Generally, the three main factors that determine your break fee are your loan amount, remaining fixed-rate term and how much interest rates have come down since you locked in your rate.
  • LMI –  To give a rough example, you could be looking at paying up to $19,000 in LMI when refinancing a $700,000 investment property with an LVR of 90% in NSW.

How much does it cost to use Futurerent?

To give you an idea of how much Futurerent costs overall, the cost to access $25,000 rent in advance using Futurerent is $2,250 over 1.5 years, with zero hidden fees and interest. There’s no other cost you need to account for.

Money can’t buy time and effort

It’s not just the money, but what it means for your time as well.

Top-up refinancing is a time-consuming and complicated process, with property investors waiting as long as three months to be funded.

We understand your time and effort is priceless, and that’s why the Futurerent experience cuts out all the rigmarole. You’ll be onboarded in minutes and if approved, we fund your rent in advance within two business days.

Avoid the costs of top-up refinancing with Futurerent

The hidden costs of refinancing are hefty on their own, before accounting for a lifetime of interest, any potential break costs and LMI.

By accessing your rent in advance with Futurerent, you can avoid the hidden costs that come with refinancing for a top-up with a traditional bank.

Use our online calculator to help you weigh up the costs and make the right financial decision for you.

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Alison has written about property since 2015. Her work has been published by NewsCorp, Domain and Business Insider. Alison is motivated to help Australians make better property investment decisions.

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