The costs of refinancing to Islamic home finance

Why do the costs of refinancing matter?

Refinancing can be worthwhile, but switching isn't free. Some costs come from your current lender, some from your state or territory government, and some from your new finance. Adding them up first helps you see whether the switch makes sense for you.

What does it cost to leave your current lender?

Discharge fee. Most lenders charge a fee to close your home loan and release their mortgage. Your current lender can tell you the amount.

Break costs on a fixed rate. If your current home loan has a fixed rate and you leave before the fixed period ends, your lender may charge break costs. These depend on how long is left on the fixed period and how rates have moved since you fixed, so they can be significant. Ask your lender for a written estimate before you decide.

What government fees apply when you refinance?

When you refinance, two registrations usually happen at your state or territory's land titles office:

• Discharge of mortgage: removing your current lender's mortgage from the title.
• New mortgage: registering the financier's mortgage.

These government fees are set by each state and territory and change from time to time. Your broker can tell you what applies where your property is.

What does it cost to set up Islamic home finance?

• Valuation. The property is valued to confirm what it's worth. Ask whether a valuation fee applies.
• Establishment fee. A one-off fee to set up your new finance.
• Settlement fee. A fee for completing settlement and paying out your current lender.
• Risk fee. Depending on how much you finance compared with the property's value, a risk fee may apply.

Ask your broker for the full list of fees for our Ijaar home finance before you apply.

What ongoing fees should you compare?

Ongoing fees can add up over the life of your finance, so include them in your comparison:

• regular account or service fees
• fees for features such as an offset sub-account, redraw or a Visa debit card, which are available on selected Ijaar home finance
• fees for changes later, such as switching between variable and fixed or splitting your finance
• a discharge fee when you eventually pay out your finance.

With Islamic home finance you pay a rental rate rather than an interest rate. When you compare, put the rental rate and all the fees side by side with what you pay now.

How do you work out whether refinancing is worth it?

Think of it as a break-even question: how long does it take for the benefit to cover the cost?

1. Add up the total cost of switching. Include the discharge fee, government fees, valuation, establishment and settlement fees, and any break costs.
2. Work out the benefit. Compare your payments and ongoing fees now with the new figures your broker gives you. For many customers, moving to finance that's structured to avoid riba is part of the benefit too. How much weight you give that is your decision.
3. Compare the two over the time you expect to keep the finance. If the savings over that time are more than the total cost, the switch may pay for itself. If they aren't, weigh up whether the other benefits matter enough to you.

Keep in mind that variable rental rates can change, so any comparison is an estimate. Compare the total cost including fees, not just the rate, and ask your broker to give you the figures in writing.

What is Easy Refinance?

Easy Refinance is available on selected Ijaar home finance for individual customers. It offers a streamlined assessment if you've held your current finance for a while and kept up your payments. Eligibility criteria apply, and your broker will confirm whether you qualify.

General information only. It doesn't take into account your objectives, financial situation or needs. Fees, charges and credit criteria apply.