Recent lower interest rates have sparked increasing interest by home owners in the refinance costs average. Re-figuring a housing loan can improve a family’s monthly cash flow, a real assist if unexpected, increased expenses or loss of income has become a problem. Refinancing can reduce the mortgage term for significant savings, and it can also provide ready cash drawn from the home’s equity.
However, the process of rewriting a home loan is not free and knowing the typical mortgage refinance costs will be important for anyone thinking of this process.
How expensive is it to refinance?
It will usually cost about 2%-3% of the loan amount, but there may be other variables to consider. For example, a pre-payment fee on the original mortgage can cost as much as 6 months’ worth of extra interest if the loan is paid off during the penalty period, which is often the first 3-5 years. Pre-payment penalty clauses are not all bad. Including them on a new loan can also get the borrower lower interest rates and elimination of non-recurring closing costs. The important thing is to be fully aware of their existence in the current mortgage and if the time requirements have or have not been fulfilled.
Other typical refinance mortgage costs
With the new interest rate and new monthly payment will come a collection of other fees usually lumped into what are called “closing costs.” Since appraisals are only good today for about 90 days, the property to be refinanced will need a new one. The lender may request payment up front to cover his expenses regardless of whether the loan is approved or not. Because of increased required paperwork and time, appraisals have risen in cost. Expect an average of $200 or more. However, a modified, outside-only, quick look, if acceptable to the lender, can be less.
A credit check fee, a loan origination fee, and a processing fee are usually included as well as third party fees that may include title search and insurance, document preparation, and a fee for recording the title at the county courthouse. Making sure that the property has equity and there are no outstanding liens is included in this process.
Finally, the lender’s fees may include paying “points,” the equivalent of pre-paid interest on the new mortgage loan. Usually each point represents about 1% of the total loan value and can lower total interest rates by
.25% -.50%. Paying extra points is a way to bring down the overall mortgage interest and can be cost-effective if the loan is to be long term.
Variations in typical refinance expenses
A No Closing Cost Mortgage is also called a Zero Point Mortgage and is often a good choice if the property is going to be owned for less than 5 years or the person is short on closing cost cash. A slightly higher interest rate will absorb these otherwise out-of-pocket expenses. This plan does not cover recurring expenses such as property taxes, property insurance, and interest.
While re-negotiating a mortgage can be a smart move, especially over a long term, high interest loan, many applicants have wondered why refinancing is so expensive. The truth is that it is very similar to taking out a mortgage for the first time, with all the same types of fees and charges, which may vary slightly from lender to lender and state to state. It is always wise to contact 3-5 borrowing institutions for both input and comparison rates before making a final decision. This can be done easily online or by phone. For many home-owners, this is a timely opportunity to refinance and free up discretionary spending.
Back to Mortgage News & Articles