Are There Closing Costs When You Refinance a House?
Refinancing your home mortgage can result in a lower interest rate and lower monthly payment. There are costs to refinance a mortgage just as there were to obtain the initial mortgage when you purchased your home. Compare the costs to refinance your home with the amount saved with the new rate to determine if a refinance makes sense.
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Refinance Closing Costs
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The closing costs to refinance a home loan are similar to the costs paid to get a mortgage on a new purchase. Costs include lender origination fees, mortgage discount point, credit and appraisal fees, and the costs to file the paperwork. The cost of title insurance is one expense that you may be able to reduce by getting your existing title insurance policy updated rather than paying for a completely new title insurance policy.
Amount of Refinance Closing Costs
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The Consumer's Guide to Mortgage Refinancings from the Federal Reserve Board says the closing costs for refinancing a mortgage can be 3 to 6 percent of the loan amount. The Bankrate.com 2010 Closing Cost Survey had a national average of $3,700 in closing costs for a $200,000 mortgage. The average cost was below $4,000 in 40 of the 50 states. This average does not include discount points, which can add 1 percent of the loan amount or more to the closing costs.
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Shop for the Lowest Costs
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The Consumer's Guide to Mortgage Refinancings recommends shopping several lenders and obtaining a good faith estimate of closing costs from each lender. A good faith estimate should be an accurate estimate of what the costs would be from a lender. The guide includes worksheets to use when comparing lenders. You can find links to the mortgage shopping worksheets in Resources.
Reduce Out-of-Pocket Closing Costs
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When refinancing, there are a couple of tactics that can reduce your out-of-pocket costs to get a new mortgage. If you have sufficient equity in your home, you can roll some or all of the closing costs into the new loan amount. If the refinancing still results in a lower monthly payment, it may be acceptable to have a higher loan balance. Another option is to select an interest rate with negative discount points. If you choose a higher than market interest rate, the lender pays points back to you, which you can use to pay some of the closing costs.
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