What Charges Are Included in Refinancing?
Mortgage refinancing is a common financial maneuver used by homeowners to get a lower interest rate, to reduce monthly mortgage payments, to switch from an adjustable rate to a fixed rate loan or to cash out home equity. While homeowners often consider the financial gains of a refinance, including saving on interest expenses and lower payments, they have to consider the investment aspect of getting a new mortgage --- you have to pay closing costs to get a new loan.
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Application Fees
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Sometimes, existing mortgage lenders may waive application fees to entice existing borrowers to refinance their existing loans. In general, though, applications cost between $75 to $300, according to Lending Tree's "Costs of Refinancing" overview. When comparing one lender to this next as far as refinancing costs, a lender with no application fee, or a lower fee is more desirable if other costs are the same. The application fee covers the lenders initial time in accepting and reviewing new your loan request.
Title Fees
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Title search and title insurance fees are estimated at $450 to $600 by Lending Tree (as of 2011). A title search is a legal review of court decisions, deeds, public land records, and other relevant documents to make certain that a property seller is the legal owner and that no liens, covenant restrictions, or other legal encumbrances will interfere with a successful sale and title transfer. Homeowners often view this as an unnecessary and time consuming aspect of a refinance. Title insurance is also a requirement in the mortgage process. It covers homeowners in the event a problem arises in the property's title.
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Loan Origination Fees
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Lenders also charge financing fees to help offset the risk they assume in providing you with new loan financing. Original fees are the direct fees charged for the lender's time in helping you complete the loan application process. Another common charge lenders used are called discount points. Typically, homeowners can buy a lower interest rate, perhaps one-quarter point or one-eighth point, by paying points upfront to the lender. One point is 1 percent of the loan; for example, a point on a $100,000 loan is $1,000. Thus, you might opt to pay an extra $1,000 at closing to get a slightly better rate over the length of the repayment.
Others
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Other refinancing fees are sometimes included in your new mortgage expenses, but are smaller, or lenders may not charge them in some instances. An appraisal fee is required by some lenders to reassess the value of your property. Existing lenders sometimes waive this requirement for homeowners. A new home appraisal is $150 to $400 (as of 2011). Legal fees from $75 to $200 paid to a lawyer to review your loan contract are sometimes charged. You may also have a prepayment penalty on your existing mortgage that you must pay by paying it off early. Some lenders include this to deter payoffs that occur before they collect enough in financing. This fee is usually a percentage of the remaining loan balance, or a certain number of months payments. It can total several thousand dollars.
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References
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