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The Cost to Refinance Mortgage
Whether you buy a house or want to refinance it involves certain expenses. It costs to refinance your mortgage, they come with a list of expenses in line with what you paid when you got your original home loan.
But it’s important to understand the cost to refinance and find ways to lower your mortgage refinance fees even before you decide on a new mortgage.
How much does it cost to refinance a mortgage?
The cost to refinance a mortgage can go from 2 percent to 6 percent of your loan amount, the other several factors are:
- The size of the loan
- The lender
- Your location
- Your credit score
- Your available home equity
- Mortgage term
- Mortgage type
Before you refinance, think about how much you’ll have to pay in closing costs and weigh it up with how much the refinance could save you over time.
Some typical costs to refinance are:
- Application fee
- Origination fee
- Credit report fee
- Home appraisal
- Home inspection
- Flood certification fee
- Title search and insurance fee
- Recording fee
- Reconveyance fee
A major factor to consider when trying to decide if a refinance is worth it or not is how long do you plan to stay in your home.
Just by calculating your break-even point, you can compare the costs to refinance with your monthly savings and future goals.
If you plan to stay in your current house for a long time and a refinance gets you a better interest rate and/or repayment term, then your refinance savings could be significant.
But, if you plan to move out in a couple of years, it might not be worth it.
Some of the reasons to refinance a mortgage
There are many reasons to consider a mortgage refinance:
- To lower your rate. You can reduce your overall interest costs and monthly mortgage payment amount just by refinancing into a loan with a lower interest rate. You could refinance and get a much better mortgage rate if you have built up your credit history or your income has considerably increased. The amount you save relies on your original rate and the costs to refinance into a new loan. To help you better estimate your bottom line you can use a refinance cost calculator.
- To change the term of your loan. Maybe now you are capable enough to pay off your mortgage earlier with a shorter term, or due to some additional responsibilities, you need to stretch out your term to get a lower monthly payment. There are compromises involved in either choice. When you move from a 30-year to a 15-year mortgage it could help you lock in a lower rate and save on interest costs, but your monthly payment will be significantly higher. When you extend your loan term, it would lower your monthly payment but over the life of your loan, it will cost you more in interest.
- Tap your home equity. You have the opportunity to improve your loan terms and use your available home equity when you have a cash-out refinance. Even if the new mortgage will be larger than your original loan, still you’ll save on the difference in cash and use it to fulfill your other financial goals, like getting home improvements or covering college costs. When you use a cash-out refinance calculator it can help if you identify your estimated mortgage payments under the new loan.
- When an ARM is Converted to a fixed-rate mortgage. An ARM is a loan that for the first few years has a low, fixed-rate, then the rate changes which generally adjusts every year. Based on market factors the variable rate fluctuates and can ultimately reach a point that makes the ARM unaffordable. If you prefer the stability of a fixed-rate mortgage convert your ARM.
- Convert an FHA loan to a conventional loan. In a loan backed by the Federal Housing Administration (FHA) if you have made anything less than a 10% down payment at closing, then for the life of your loan, you’ll pay mortgage insurance premiums so the option is to refinance into a conventional loan. So at the time of your refi, if you have a minimum of 20% equity then on your new loan you can avoid private mortgage insurance costs.
How to lower the cost to refinance
By improving your creditworthiness
Fault-free credit history and a stunning credit score can give you the hold that you need to access the best refinance offers.
See to it that your bills are paid on time, bring down your outstanding debt and if you find any error in your credit report dispute it immediately.
Shop around with multiple lenders
Unless you comparison shop you won’t know whether you’re getting the best deal or not. Apply for a loan with at least three to five lenders to compare their refinance fees.
Negotiate your refi costs
Many times the fees associated with refinancing can be negotiated. especially application or origination fees can be reduced or waived by some lenders.
Speak up and ask for a better deal.
Consider a no-closing-cost refi
If you are not equipped with upfront cash to pay the full cost to refinance your mortgage, then a no-closing-cost refinance is an option.
Even if it is not a free refinance, your will be either charged a higher interest rate or the closing costs will be added to your new loan balance by the lender, this arrangement will of course costs you more money over time.
Conclusion
With a refinance you can change the terms of your mortgage loan and make it easier to pay your bills or get cash out of your equity.
With a refinance, you can pay off your original mortgage and take on a new loan.
The process of applying for a refinance is similar to the home buying process. After submitting an application to your lender, you go through an appraisal and underwriting and attend a closing meeting.
Look at various probabilities to know what would it cost to refinance a mortgage and move ahead.
