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What Costs Are Associated With A Refinance?

If you are considering refinancing your existing mortgage, it is important to understand the costs and fees you'll have to pay and how long it will take you to recover those costs. Refinancing is similar to applying for an original mortgage, so you can expect to pay similar costs. Some of these may include: An application fee, which covers the lender's cost to process your application. A fee for a search of the public record of ownership of your property. A title insurance policy, which protects the lender for any loss due to a discrepancy in the title (you may be able to have your settlement company re-issue your current title policy at a reduced rate, saving you some of the cost to have this service performed). A fee to have your property re-appraised. A new survey of your property to confirm that no changes to the land or physical structures have been made that would affect its potential sale. A loan origination fee, which covers the lender's work in evaluating and processing your loan. It is usually expressed as a percentage of your loan. Other fees, depending on the type of mortgage refinancing you are seeking, may include a VA loan guarantee, FHA mortgage insurance, or private mortgage insurance. Other Costs and Considerations Some refinance costs may be waived under certain circumstances. For example, an appraisal may not be necessary if you refinance with your original lender. Or you may be able to get a lower rate or have some of the fees dismissed with through negotiation. If you have additional cash for the closing, you may be able to bring your interest rate down by having discount points applied to your new mortgage. Each discount point equals one percent of the loan amount (for example, one point on a $150,000 mortgage equals $1,500). Be sure to ask your lender if your existing mortgage contains a prepayment penalty. Many states limit this penalty or prohibit it altogether. You may choose to hire your own attorney to review documents and to represent and guide you through the stages of this transaction. If you do, you will have to pay your attorney out of your own pocket. Check with the lender to see if "no-cost" financing is offered. Under this plan, you don't pay many of the typical costs, but the interest rate on your mortgage may be higher. You may be able to save paying some fees by talking to more than one lender and selecting the one that best meets your refinancing needs at the lowest cost. Recouping Your Costs Over Time An important question to ask before starting the refinance process is "How long will it take to recoup the up-front costs of the refinance?" In some cases, you may have to remain in your home for several years before you have recouped these costs. To determine if you're likely to recover the fees you pay to refinance within an acceptable amount of time, just divide your total refinancing cost by your total monthly savings. This will show you approximately how long it will take to recover your up-front costs through your lower monthly mortgage payment. If you find it would take longer to recover your costs than you plan to remain in your home, you may not want to refinance your mortgage. Your lender can help you make this decision.

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