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- What Are Netting Escrows & How Does It Work?: The Best Guide - January 2, 2024
- The Secret About Prescriptive Easement: Top Guide 1 Must Know - December 4, 2023
- About Home Equity Loans In Texas And How Can One Obtain It - November 27, 2023
About Mortgage Refinance Fees
Looking at the current mortgage market the number of refinancing applications has skyrocketed since the last few months.
Many of these homeowners are refinancing for the first time and may need to know the costs behind refinancing.
It is a common question that is asked in the refinancing fraternity how much does it cost to refinance a mortgage? As most of you must be aware that you need to pay some fees to refinance.
In this post, we will understand the mortgage refinance fees in detail.
Refinancing can be a major stress reliever for you if you have a good loan officer. It could be possible that you might not know everything about what is going on and all the potential costs that are involved in a refinance.
Hence, you might need a loan officer who you trust, has enough knowledge, and is willing to share all the important fees to refinance with you.
Does it cost to refinance a mortgage?
Yes, 100%. It doesn’t matter if you are working with a lender, broker, or a credit union, there will always be some sort of cost associated with your refinance.
Even if it means there is no money out of your pocket. Some lenders may ask you to pay out of pocket others might just roll these refinance fees into your mortgage balance.
You as a borrower need to know the break up of fees to refinance and what it costs to refinance.
Break Down of Mortgage refinance fees (Loan Estimate)
We will understand the mortgage refinance fees using a loan estimate which you will get when you start your refinance process from your lender or the broker. This will show you all the fees that can be and some that you should definitely look out for.
Not all lenders or brokers are going to send you a loan estimate, so please make sure you ask for one to get a complete break up of the mortgage refinance fees.
If the lenders are not able to send you a loan estimate, you can ask them to send a fee worksheet, it is basically the same thing.
In your loan estimate, the first page gives you information about your loan amount, interest rate, and your monthly payment.
Double-check if the balance is not significantly higher than your current balance and that you are comfortable with the interest rates and the monthly payments.
Once you have double-checked everything on page 1 and you are good to go, it is time to check page 2 where you have the itemized mortgage refinance fee structure.
The biggest thing that you will want to drill down on is ‘Section A’ or the first thing that you see is the loan cost.
This is the area where you can get ripped-off the most depending on which lender you are working with.
In section A, you will potentially see fees like application fees, underwriting fees, processing fees, etc. These fees are just a way for the lender to make more money and are not necessary.
You want to make sure you pay attention to those. However, one thing that is significant in this section is the discount points. A discount point is a fee that you pay upfront to buy down an interest rate.
One discount point equals one percent of the loan amount. This section shows a bulk of what your cost to refinance would be.
Section B on page 2 shows the type of mortgage refinance fees that the borrower cannot do anything about. Like an appraisal fee, credit report fee, flood cert, tax, tax cert, etc.
These are pretty much standard across the lenders. You, however, might want to know if you actually need an appraisal for your refinance because not all refinance transactions needs an appraisal.
That means you can save up to $500 on your refinance. Your loan officer is the right person to try and get you an appraisal waiver or “Property Inspection Waiver” (PIW) to save on the appraisal fees.
Section C, on page 2 shows the title fees. There is not much a borrower can do about these types of mortgage refinance fees either.
You can shop around with different Title companies and see if you can get cheaper prices. Though these are also pretty much standard across the lenders you won’t find much difference even if you shop around.
Section E on page 2 would give you some taxes and government fees if applicable on your loan.
Section F and Section G on page 2 you would see all the prepaids. Again, these are something that would be collected no matter which lender you decide to go with.
Your current lender holds an escrow account which is a bank account that has a bunch of prepaid property taxes and prepaid insurance payments saved in there.
You make these payments monthly to your lender however, your insurance policy is due every 12 months and your taxes are typically due every 6 to 12 months depending on your state.
So you make a payment every month for these entities which are saved in the escrow account and the lender will pay the property taxes and insurance from this escrow account whenever it is due.
When you refinance, your new lender needs to start a new escrow account in which they will collect the substantial amount to start with so that they don’t end up short in escrow.
The balance of your current escrow account will be refunded to you from your current lender within 30 days after your closing.
Conclusion
To know how much does it cost to refinance a mortgage, you need to add Section A, B, C, and E. Usually, the cost of refinancing should be 1-2 percent of the new loan amount if you are working with a competitive lender.
Most times you don’t really see these costs or feel these costs when you do a refinance, because everything gets rolled into the loan as most people don’t want to pay anything out of their pocket.
Understanding your refinance fee structure could make a huge difference for you to analyze when you would be breaking even and if it would make sense to refinance.
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