Hi Chronograph,
The usual cost of refinance are
1) Early redemption penalty, 1.5% of redemption amount
2) Legal fees clawback, base on 0.4% of the loan granted
3) Mortgage discharge fees from bank A, $500
4) Fire insurance clawback. approximate $100
5) Legal fees for refinance of new loan $2500
Read your Letter of Offer from A Bank. Since your lock-in period will end in August, there should be no redemption penalty
Legal fees subsidies clawback is 0.4% of initial loan amount, up to $2500 (check your Letter of offer), usually after three years into the repayment then there will be no clawback, likewise for Fire insurance
Legal fees for refinance = $2500 - ($100,000 x 0.4%) = $2100
Example based on assumption that no redemption penalty
Interest on new loan if you do conversion:
($120,000 - $20,0000) X 3.75% = $100,000 x 3.75% = $3750
LESS
Interest on new loan if refinance $100,000 X 1.7% = $1700
Legal fees clawback: Assume initial loan is $300,000 x 0.4% = $1200
Fire insurance clawback = $100
Mortgage Discharge =$500
Legal fees for refinance = $2500 - ($100,000 x 0.4%) = $2100
$3750 - $1700 -$1200 - $100 - $500 -$2100 = -$1850 (Loss on refinancing)
Refinance will be worthwhile if loan amount is larger because of the high fixed costs like legal fees, mortgage discharge, etc
Another question you should ask if you are selling your house in the near future like within two years.
Assumption:
If you are selling your house on the start of third year,
$1850/24 months = $78 per month (this is to add into your monthly installment)
New installment after refinancing, assuming 20 years loan at 1.7% (for two years) and loan of $100,000
your monthly installment is $491
Add $491 to $78 you get $569 (you have to smoothen out your losses)
If you do conversion:
Assuming $100,000 loan for 20 years at 3.75% your monthly installment is $592
Difference is $23 per month for two years. And you have to pay mortgage discharge fees, legal fees clawback, fire insurance clawback again when you sell your house. hmm you give it a thought....
Disclaimer:
Above scenario is based on assumption and should not be relied on for financial advice. Seek a mortgage banker for proper advice.
