What does it Cost to Refinance a Mortgage?
Homeowners are now rushing to refinance their mortgages. Why? Because interest rates are currently very low and they see mortgage refinancing as a good way to save money. If you, too, are considering going this route, remember that the interest rate is just one part of entire deal and there are fees that you need to pay when you refinance. How much does refinancing really cost and is it even worth the effort?
When you refinance your mortgage, you are in essence getting a new mortgage, which means that you will have to pay a lot of the same fees that you paid when you bought your house. It is important to review these fees so that you can calculate whether the money that you can save is worth the effort of refinancing. Of course, refinancing costs vary according to locality as well, but in general you will have to pay 3 to 6 percent of the principal when your mortgage is refinanced.
You are not obligated to refinance with your current lender, so you can shop around for other lenders who may offer more reasonable refinancing terms. There are seven common fees and charges that you can expect to pay when you refinance your mortgage. The application fee is the first thing you need to take care of when you refinance. This usually ranges from $75 to $300, and includes the cost of getting a copy of your credit report. You will have to pay the fee whether your application is approved or not.
If your application is approved, the lender will charge a loan origination fee for setting up the loan for you. This is usually one to one-and-a-half percent of the principal. You will also have to pay an appraisal fee because house values tend to change and your lender will naturally want to get the current value of your property. Usual cost of appraisal is between $150 and $400. Your house may also have to be inspected for termites or other problems, in which case you will have to pay an inspection fee that normally costs $175 to $300.
The title insurance covers the cost of checking if there are liens against your property or if there are possible problems with a so-called clouded deed. This cost can range from $250 to $900. A closing fee is then paid to the attorney to ensure that all documents are in order. On average, a closing fee is $750 give or take a couple of hundred. Finally, there are points, which is an optional extra cost. Points can help lower the interest rate on your mortgage, so the decision of whether to purchase them or not is ultimately up to you.
