The Cost Of Refinancing Your Mortgage
The Cost Of Refinancing Your House
It is not unusual to pay 3 percent to 6 percent of your outstanding principal in refinancing fees. These expenses are in addition to any prepayment penalties or other costs for paying off any mortgages you might have. Refinancing fees vary from state to state and lender to lender. Here are some typical fees and average cost ranges you are most likely to pay when refinancing. In general, refinancing includes the following closing costs outlined below:
You can ask for a copy of your settlement cost papers (the HUD-1 form) one day in advance of your loan closing. This will give you a chance to review the documents and verify the terms.
Lenders impose this charge to cover the cost of checking a borrowers credit report, and the initial cost to process the loan request.
Cost range = $75 to $300
Title insurance and title search.
This charge covers the cost of a policy, which is usually issued by the title insurance company, and insures the policy holder for a specific amount, covering any loss caused by discrepancies found in the property’s title. It also covers the cost to review public records to verify ownership of the property.
Cost range = $700 to $900
Ask the company carrying your current title insurance policy what it would cost to reissue the policy for a new loan. This may reduce your cost.
Attorney review/closing fee.
The lender will usually charge you for fees paid to the lawyer or company that conducts the closing for the lender.
Cost range = $500 to $1,000
Your lender will require that you have a homeowner’s insurance policy (sometimes called hazard insurance) in effect at settlement. The policy protects against physical damage to the house by fire, wind, vandalism, and other causes covered by your policy. This policy insures that the lender’s investment will be protected even if the house is destroyed. With refinancing, you may only have to show that you have a policy in effect.
Cost range = $300 to $1,000
Lender’s attorney review fees.
The company or lawyer who conducts the closing will charge the lender for fees incurred, and in turn, the lender will charge those fees to the borrower. Settlements are conducted by attorneys representing the buyer and seller, real estate brokers, escrow companies, title insurance companies and lending institutions. In most situations, the individual conducting the settlement is providing their services to the lender. Borrowers may be required to pay for other legal fees and services related to their loan, which is then provided to the lender. They may want to retain their own attorney for representation in the settlement, and all other stages of the transaction.
Cost range = 0% to 1.5% of the loan principal
Points and fees incurred in loan origination.
Lenders charge an origination fee for their work in preparing and evaluating a mortgage loan. Points are prepaid financial fees which are imposed by the lender at closing. This is to increase the lending institution’s yield beyond the agreed upon interest rate on the mortgage note. One point is equal to one percent of the actual loan amount.
Cost range = 0% to 3% of the loan principal
The length of time that you expect to keep the mortgage helps you determine whether it is worthwhile to pay points up front to reduce your interest rate. Unlike points paid on your original mortgage, points paid to refinance may not be fully deductible on your income taxes in the year they are paid
Lenders require a survey, to confirm the location of buildings and improvements on the land. Some lenders require a complete (and more costly) survey to ensure that the house and other structures are legally where you say they are. You may not have to pay this fee if a survey has recently been conducted for your property.
Cost range = $150 to $400
Some lenders charge a fee if you pay off your existing mortgage early. Loans insured or guaranteed by the federal government generally cannot include a prepayment penalty, and some lenders, such as federal credit unions, cannot include prepayment penalties. Also some states prohibit this fee.
Cost range = one to six months’ interest payments
What is “no-cost” refinancing?
Lenders often define “no-cost” refinancing differently, so be sure to ask about the specific terms offered by each lender. Basically, there are two ways to avoid paying up-front fees.
The first is an arrangement in which the lender covers the closing costs, but charges you a higher interest rate. You will pay this higher rate for the life of the loan.
The second is when refinancing fees are included in (“rolled into” or “financed into”) your loan they become part of the principal you borrow. While you will not be required to pay cash up front, you will instead end up repaying these fees with interest over the life of your loan.
Closing costs calculator (estimator) can help you estimate your total closing expenses. Ssee closing costs based on the specifics of your financial situation.