Thinking of ways to refinance your mortgage rates? No matter what the reason is – possibly to receive a lower monthly mortgage payment rate – it's important to understand that a lower rate on your mortgage doesn't necessarily mean it will save you money. Behind the ads from mortgage companies offering refinancing, there are a variety of fees and sometimes “hidden” costs that must be taken into consideration when shopping for the best deal. Be sure to do lots of number crunching before you decide to refinance, before you pick a plan, and certainly before you sign anything.
Most people usually end up paying anywhere from 3 – 6% of their remaining principal loan in financing fees when they are looking to refinance mortgage rates. These costs do not include any extra fees or penalties on prepayment and other miscellaneous charges that your mortgage company may have.
Also take note that your fees will vary depending on what state you live in and what lender you are working with. The purpose of this article is simply to explain some of the representative charges and regular cost arrays that you might encounter when you embark on your refinancing shopping journey.
Before you refinance your mortgage rates, we would advise you to ask to get a copy of all the settlement papers a day before your loan is scheduled for closing. That will at least give you some time to go over your paperwork and validate terms of the loan.
Here's a breakdown of the major costs of refinancing your mortgage:
The typical fee for application. This pays for the primary expenses of having your request for a loan processed and the overall credit report checking process. In some cases, even if a loan is rejected, you are still required to pay for this.
Expected Cost = $75 to $300
Loan origination fee. This is a cost your insurance broker or lending company will charge and it is linked to the costs for the loan assessment and preparation.
Expected Cost = 0% to 1.5% of the loan principal
Points. Typically, one of these points equals 1% of the overall mortgage loan amount. You will hear talk about two various kinds: loan-discount points that include a charge generally paid to lower your loan’s interest rate. Also, some of the lending officers and brokers may charge extra for additional earnings. In some cases, you may be able to negotiate with your lender on the number of points you are charged. You should check with the IRS for the current rules on deducting points from your taxes.
Expected Cost = 0% to 3% of the loan principal
Appraisal fee. This extra charge is basically for the evaluation of your residential property. An appraisal tells the lending company that your property is actually worth at least as much as the amount of the loan. Some companies will include this as part of the fee for application. Make sure to ask for a copy of your appraisal, as you are entitled to it. If you have already had an appraisal recently, you should also ask your lender if the appraisal fee can be waived.
Expected Cost = $300 to $700
Inspection fee. Oftentimes, the lender will require an inspection of the home to check for termites and structural problems. Inspections are typically conducted by an expert property assessor, consultant or engineer. It is up to your lender to ask for a test of your septic system, water system, or well to make sure there is a satisfactory water supply for the residence. Some states may even require specific inspections, particularly for certain pests that are endemic to the region.
Expected Cost = $175 to $350
Lawyer review/closing fee. The lending company is also likely charge you for fees paid to the attorney or legal company conducting the closing process.
Expected Cost= $500 to $1,000
Homeowner's insurance. At settlement, your broker will ask that you have a proprietor's insurance policy (also called hazard insurance). Homeowner's insurance protects against physical damage to the house, as a result of various factors such as fire, storms or vandalism. If you already have signed for such a policy, you simply need to provide proof of the policy.
Expected Cost = $300 to $1,000
Title insurance and search. This is for searching the former records on the residential property to make sure the information you provide is correct and you are the actual owner. You may be able to reduce your cost if you ask the company issuing your current title insurance policy what it would cost to reissue the policy on a new loan.
Expected Cost = $700 to $900
Prepayment penalty. Some lending companies will typically charge for the event when you choose to pay early on your existing mortgage. You should know that loans that were guaranteed by the US government should never include such fees.
Expected Cost = one to six months' interest payments
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