The Cost of Refinancing
Perhaps you are refinancing to convert some of the equity in your home into cash; or you want to refinance out of an adjustable-rate mortgage into a fixed-rate mortgage (or vice versa). Or perhaps you are trying to lower your monthly payment. Regardless of your reasons, you will want to know how much your refinance is going to cost you.
Lender fees
These refinance costs are charged directly by the lender to cover the cost of processing your application. These may include an application or origination fee, as well as miscellaneous charges. These items usually appear first on your Good Faith Estimate (GFE). For more information on GFEs, see our article How to Read a Good Faith Estimate.
Third party fees
These are charges associated with your refinance application that are paid for by the lender and passed on to you. They may include fees for the appraisal, any inspections required, title attorney services associated with closing, the title search, and title insurance. (Required by most lenders, title insurance protects you if there is any ownership dispute in the future. Rare, but it does happen.)
Pre-paid items
Lenders often require certain items to be paid up front, like mortgage insurance premiums (if you are refinancing for more than 80 percent of the property’s value) and homeowner’s insurance. If your policy is due for renewal within 90 days of closing, many lenders require that you pay the next year’s premiums in advance.
Reserves
Some lenders require that a few months of taxes, insurance and private mortgage insurance (PMI) be paid into an account that is held by the lender and paid when due on your behalf.
Pre-payment penalty
This is a fee charged on some loans for paying them off early. If your existing loan has a pre-payment penalty, there’s not much you can do about it now, but it’s worth asking if your refinance carries it – the length of the average mortgage is about seven years, a pre-payment penalty rarely benefits the borrower.
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