If you are like many homeowners, you are thinking about refinancing your mortgage. Perhaps you are still in the midst of your decision, or maybe you have already decided that you are going to refinance. Wherever you are in the process of refinancing, there are costs that you should know about.
While refinancing can potentially save you money, it is a long process that requires you to pay multiple costs and fees. When you are figuring out what your new mortgage payment will be, you need to ask yourself “How much will the refinancing costs be?” You need to understand all that refinancing involves. You want to be completely prepared to spend some money upfront in order to get the process going and finish it so that you can enjoy the many benefits that refinancing has to offer.
Below are some of the costs to budget for when refinancing your home:
- Application fee: You must pay a mortgage application fee to cover the cost of an appraisal, credit report, and other administrative costs. This fee ranges from $200 to $500.
- Origination fee: Also called a loan processing fee, the origination fee is usually a percentage of your total loan. Generally, the fee is around one percentage point of your refinanced mortgage loan total.
- Appraisal fee: You need to find out the value of your home because it plays a huge part in the determination of your mortgage rate. It also determines whether or not you can receive cash out after refinancing. An appraisal generally costs a few hundred dollars to several hundred dollars.
- Document preparation fee: This is a fee that many lenders charge in order to review the refinancing documents before the loan is closed.
- Title examination fee: The lender may want to examine public records to make sure that you are the owner of your home. This fee ranges from $150 to $450.
- Additional miscellaneous costs: Expect to pay various other costs including pest inspections, recording fees, taxes, and courier service fees, among others.
Unlike mortgage rates, the price of closing costs has been the same for many years now. You should plan on spending at least 2% of the loan amount on closing costs. Consider this when estimating how long it will be before the savings from refinancing offset the costs.
Refinancing a mortgage loan can be a long and expensive process, but if you are prepared upfront about the costs and fees, you can budget accordingly. The last thing you want is to be flat out broke after refinancing, so be sure to figure out the costs and set aside a certain amount to cover them. In time, refinancing will pay off, making the costs worth it in the long run.
As stated before, if you are considering refinancing, it is essential that you know the value of your home. Instead of getting an appraisal, consider obtaining a free home valuation report from Neighborhood IQ to find out your home’s worth to help you decide if refinancing is right for you.