Charles R. Nelson Mortgage, Inc.    


Cost of Refinancing        

How much will it cost you to refinance? The answer to this question will be a major factor in deciding whether or not to refinance, and a determining factor in the timing of your refinance and in what type of mortgage you choose. Sound familiar yet? Because you are applying for a new loan, the costs involved will be much the same as those you faced when you first bought your home.

Once again, you can expect your closing costs to be about 3% to 6% of the amount you will be borrowing--either the remaining principal of your current mortgage, or, if you are seeking a cash out mortgage, the greater amount of the new mortgage. However, various lenders have begun to offer low-cost or no-cost refinances. This means that you do not pay as many (or any) closing costs, or rather, that those costs will be spread out over the term of your loan in the form of a higher interest rate. So, even if you choose this type of refinancing, you should consider the costs involved in obtaining a new loan.

The more it costs you to obtain your new loan, the longer it will take to recover that cost in the monthly savings your new loan might give you. The most significant cost will probably be the points you pay to the lender. Much like the first time around, this up-front interest can generally be exchanged for a lower interest rate on the loan. How much you might want to pay in points--and save in interest--will depend on how long you plan to keep your new mortgage. The longer you will keep it, the more initial discount points could save you overall. However, if you plan to move in a few years, you might want to negotiate your way out of paying points.

Of course, as you probably remember, there are a number of other costs involved in taking out a mortgage loan--appraisal fees, credit checks, legal fees, inspections, title search and insurance, taxes, etc. These fees can easily add up to several thousand dollars, so you'll want to research your options and avoid as many as possible. A new appraisal may not be necessary. You may no longer need mortgage insurance. And you might be able to get some of the costs waived. If you refinance with the same lender who holds your current loan, you might be able to update your title insurance instead of taking out a new policy. Or, you might persuade them to waive or reduce application and credit check fees. Even a new lender might be willing to negotiate some of these items.

Here is a list of the fees you might pay along with explanations of each one.

Application Fee - This charge imposed by your lender covers the initial costs of processing your loan request and checking your credit report.

Title Search and Title Insurance - This charge will cover the cost of examining the public record to confirm ownership of the real estate. It also covers the cost of a policy, usually issued by a title insurance company, that insures the policy holder in a specific amount for any loss caused by discrepancies in the title to the property. (Be sure to ask the company carrying the present policy if it can re-issue your policy at a re-issue rate. You could save up to 70% of what it would cost you for a new policy.

Lender's Attorney's Review Fees - The lender will usually charge you for fees paid to the lawyer or company that conducts the closing for the lender. Settlements are conducted by lending institutions, title insurance companies, escrow companies, real estate brokers, and attorneys for the buyer and seller. In most situations, the person conducting the settlement is providing a service to the lender. You may also be required to pay for other legal services relating to your loan which are provided to the lender. You may want to retain your own attorney to represent you at all stages of the transaction including settlement.

Loan Origination Fees and Points - The origination fee is charged for the lenders work in evaluating and preparing your mortgage loan. Points are prepaid finance charges imposed by the lender at closing to increase the lender's yield beyond the stated interest rate on the mortgage note. One point equals one percent of the loan amount. For example, one point on a $75,000 loan would be $750. In some cases, the points you pay can be financed by adding them to the loan amount. The total number of points a lender charges will depend on market conditions and the interest rate to be charged.

Appraisal Fee - This fee pays for an appraisal which is a supportable and defensible estimate or opinion of the value of the property.

Prepayment Penalty - A prepayment penalty on your present mortgage could be the greatest deterrent to refinancing. The practice of charging money for an early pay-off of the existing mortgage loan varies by state, type of lender, and type of loan. Prepayment penalties are forbidden on various loans including loans from federally chartered credit unions, FHA and VA loans, and some other home-purchase loans. The mortgage documents for your existing loan will state if there is a penalty for prepayment. In some loans, you may be charged interest for the full month in which you prepay your loan.

Miscellaneous - Depending on the type of loan you have and other factors, another expenses you might face is the fee for a VA loan guarantee, FHA mortgage insurance, or private mortgage insurance. Additionally, costs for credit check, attorney's fees, inspections, or other local fees and taxes may be assessed.

Needless to say, you'll want to check carefully on the various costs involved in your new loan to save all you can. Don't be afraid to negotiate. Shop around for the lowest rates. One way of saving on some of these costs is to check first with the lender who holds your current mortgage. The lender may be willing to waive some of them, especially if the work relating to the mortgage closing is still current. This could include the fees for the title search, surveys, inspections, and so on. Consider your situation, and choose what's best for you.                     

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