Mortgage refinancing costs as much as 3% – 5% of the loan amount. Suddenly that lower mortgage payment doesn’t seem so enticing, does it? If the closing costs eat away at your savings, it may not make sense to go through with the refinance.
Fortunately, there are ways to lower your mortgage refinance fees. Follow the simple tips below to reduce how much you to refinance.
Make Your Application Attractive
First, make your loan application as attractive as possible. Make lenders want your business. Just how do you make your application attractive? Try the following:
- Maximize your credit score by paying your bills on time, decreasing your debts, and not opening any new accounts
- Keep your debts as low as possible so that you have a low debt-to-income ratio
- Have a decent amount of equity in the home
- Have stable employment and income
The more reasons you give lenders to give you a loan, the more likely they are to work with you on the fees. Lenders use what’s called ‘risk-based pricing.’ The higher the risk you pose (low credit score, high debt ratio), the higher the interest rate lenders will charge.
Negotiate with the Lender
Once you make your application as attractive as possible, consider negotiating with lenders. While there are certain fees lenders can’t change, such as the appraisal or title fees, they can adjust their own fees. For example, if a lender quotes you 2 points on a refinance, you may come back and ask for a loan with just one point. Or you may even ask for a loan with no points.
Lenders typically do what they can to keep your business, especially if you are a ‘good risk.’ If you make your loan application as attractive as possible, you’ll have a better chance of saving money on your loan.
Stick With Your Original Lender
While you certainly don’t have to stay with the same lender, it’s not a bad idea to do so. Your original lender may be more willing to negotiate the closing fees in order to keep your business. This is especially true if your lender knows you have already shopped around with other lenders.
Don’t be afraid to tell your lender that you’re shopping around for a refinance. Sometimes you may not even have to ask for the lower fees – your lender may provide it. Since they already have a lot of your information, your current lender has to do less work on your loan, which can make it easier for them to charge you less.
Ask for a No-Closing Cost Loan
Some lenders offer what’s called a ‘no closing cost loan.’ While the name sounds like you get away with a free loan, that’s not the case. It’s a tradeoff. Rather than paying the closing fees, the lender charges a higher interest rate (typically 0.5% higher). The lender then pays your closing fees for you.
You end up paying the closing fees in the extra interest that you pay. If you’re going to stay in the home for a long time, this isn’t the best strategy because you’ll be stuck with the higher interest rate. But, if you know you’re moving soon, taking the higher interest rate and avoiding the closing costs could be a good strategy.
Last, but not least, shop around. Don’t just take the first approval that comes across your lap. Instead, find out what other lenders have to offer. When you have several quotes in front of you, compare them. Then go back to the lenders that you want to work with and negotiate your fees. Let lenders know about the other quotes you received. You never know when they’ll lower their fees too.
Mortgage refinance fees don’t have to be unaffordable. Take your time, shop around, and negotiate, but only after you perfect your qualifications so that lenders want to give you a loan at low cost. You’ll save the most money and get the best terms.Click to See the Latest Mortgage Rates»