Nothing in life is free, including refinancing. Just because there are refinancing costs, though, does not mean that it is not worth it to refinance. If you are able to save money every month and will recoup the closing costs you paid before you move from the home, then it is worth it. Typically, a refinance costs between 3 and 6 percent of the loan amount. Understanding the most common costs and what they are charged for can help you get a better grasp on refinancing.
Not every lender charges an application fee, but if they do, it is usually between $75 to $300. The amount depends on the loan amount and the work that is involved with processing your application. This charge covers the lender’s costs in looking over your application, pulling your credit, and determining whether or not you are prequalified for the loan. Every lender is different when it comes to the application fee; some charge it whether or not you take the loan while others charge it only if you close on the loan.
The lender will quote you a specific interest rate when you apply for the loan. If you want a lower rate, you can “buy” the rate down with discount points. The more points you pay, the lower your interest rate becomes. The lender will tell you the number of discount points needed to get your interest rate where you want it. There is a maximum amount the lender is allowed to charge, however, so you do not have to worry about being overcharged.
Origination Fee or Points
Another type of points you could be charged is the origination points or fee. This can be a flat fee or in points. One point equals one percent of the loan amount. If the lender charges you one point and your loan amount is $150,000, your origination fee would be $1,500. This lender charges this fee to cover his costs in evaluating and putting together your loan.
If the lender does not charge an origination fee, he might list individual charges for the items that need to be done to get your loan closed. The processing fee is a general fee that the lender charges to get miscellaneous items evaluated and completed on your loan. The amount can vary, but many lenders charge between $695 and $895 for processing.
Credit Report Fees
If the lender does not charge an origination fee, another itemized fee he could charge is the credit report fee. This fee can only be the exact amount that the credit bureau charges the lender. The amount charged depends on the type of credit report pulled, whether it is a single bureau or a tri-merged report from all three lenders.
Unless you are refinancing with a streamlined program, such as the FHA or VA Streamline, you will need an appraisal. This is what reassures the lender that the value of your home is still there and that the loan amount is less than that value. The appraisal fee is a third party fee and is simply the amount the appraiser charges. This amount varies between $300 and $700 in most areas.
Even though you already own the home, the title company will need to perform another title search to ensure that you are the owner of the home. They will also make sure there are no other liens on the property. Once the search is complete, the title company will administer title insurance, which is a separate closing cost. This insurance protects the lender should something come up down the road.
Negotiating Refinancing Costs
The good news is that you can negotiate your refinancing costs with the lender. You can either bargain for lower costs or even ask for a no-cost refinance. If you opt for the no-cost option, you opt to take a higher interest rate in exchange for no closing costs. The lender covers the closing costs and recoups the money with the higher interest rate they charge you.
When you are ready to refinance, make sure to get quotes from several lenders. You will likely find that different lenders have different fees that they charge. Some lenders are more willing to negotiate than others as well. When you shop around you can compare the various programs and fees available to you to help you make the right decision.Click to See the Latest Mortgage Rates»