Mortgage Refinancing - Counting the Costs

Mortgage refinancing means paying off your existing mortgage with a new loan, using the same property as collateral. The amount you’ll save by refinancing will vary depending upon current interest rates, refinancing costs and tax consequences.

Mortgage refinancing makes sense if Interest rates have dropped more than two points since you got your original mortgage, or if you want to change from an adjustable-rate to a fixed-rate loan to avoid future interest hikes.

As to the costs of mortgage refinancing; expect to pay between three and six percent of the mortgage, plus any prepayment penalties you might incur by paying off the existing loan. Below are some of the fees and charges you are most likely to encounter. Costs vary widely from state to state and loan to loan. These numbers are average estimates only.

Application Fee ($75 - $300): This charge covers the initial costs of processing your mortgage refinancing request and checking your credit report. Bad credit will result in a higher interest rate.

Appraisal Fee ($150 - $400): This fee pays for an appraisal which is a supportable and defensible estimate of the current market value of the property.

Attorney’s Review Fees ($150 - $300): The lender will usually charge you for fees paid to the lawyer or company that conducts the mortgage refinancing closing. Settlements are conducted by lending institutions, title insurance companies, escrow companies, real estate brokers and attorneys for the buyer and seller. You may want to retain your own attorney to represent you at all stages of the mortgage refinancing transaction.

Loan Origination Fees (Usually 1% of loan): The origination fee is charged for the lender’s work in evaluating and preparing your mortgage refinancing.

Points (1% of loan): Points are prepaid costs imposed to increase the lender’s yield on the loan. Paying points can lower the interest rate, which will lower the monthly payments. Some lenders will roll the points into the loan. The downside is that the borrower will be paying interest on these fees over the life of the loan.

Private Mortgage Insurance (PMI) Usually 0.5% to 1.0% of loan): PMI is required when the amount of the mortgage is greater than 80% of the home’s appraised value. This insurance protects the lender against loss if the borrower defaults on the loan.

Title Search and Title Insurance ($450 - $600): These cover the costs of examining the public record to confirm ownership of the real estate, and the costs of a policy insuring the policy-holder for any loss caused by discrepancies in the title. Be sure to ask the company carrying the present policy if it can re-issue your policy at a re-issue rate. This could save you up to 70% of what a new policy would cost.

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Posted in: Costs,Counting,Mortgage,Refinancing