Mortgage Refinancing Costs

As a homeowner you should plan on paying an average of 3 to 6 percent of the outstanding principal in refinancing costs, plus any prepayment penalties and the costs of paying off any second mortgages that may exist. Before refinancing with another lender you may want to contact your current mortgage lender and have them review any penalties. Some lenders will also offer to waive refinancing fees and will "rollover" your mortgage to a new one if you stay with them.

The length of time you plan on staying in your current home is also a factor in deciding to refinance. It takes about three years to "break even" from a refinance, so if you plan on moving sooner than three yaers it may not be worthwhile. If you plan on staying in your home for much longer it may even make sense to refinance if the current interest rate is only 1.5% lower than the rate you are paying.

Refinancing Fees:

• Title Insurance / Title Search
• Loan Origination Fees / Points
• Application Fee
• Lender Attorney Fees
• Prepayment Penalty
• Appraisal Fee
• Other Misc. Fees

Title Insurance and Title Search
This fee covers the cost of a title insurance policy, usually issued by a title insurance company, that insures the policy holder in a specific amount for any loss caused by discrepancies in the title to the property. It covers the cost of examining the public record to confirm ownership of the real estate. It also covers the cost of a policy, usually issued by a title insurance company, that insures the policy holder in a specific amount for any loss caused by discrepancies in the title to the property.

Loan Origination Fees and Points
The lender's charge a loan origination fee for work done in evaluating and preparing your mortgage loan. Points are pre-paid finance charges imposed by the lender at closing to increase the lender's yield beyond the stated interest rate on the mortgage note. The total number of points a lender charges will depend on the current market and the interest rate to be charged. One point equals one percent of the loan amount. For example, one point on a $100,000 loan would be $1,000. The points you pay can sometimes be financed by rolling them into the amount financed.

Application Fee
The lender charges this to cover the initial costs of checking your credit report and processing your loan request.

Lender Attorney Fees
The lender will usually charge you for fees paid to the company or attorney that conducts the closing. Settlements are conducted by real estate brokers, title insurance companies, escrow companies, lending institutions, and lawyers for the seller and buyer. In most situations, the person conducting the settlement is providing a service to the lender. You may also be required to pay for other legal services relating to your loan which are provided to the lender. You may choose to retain your own attorney to represent you at all stages of the transaction including settlement.

Prepayment Penalty
The practice of charging money for an early pay-off of the existing mortgage loan varies by state, type of lender, and type of loan. Prepayment penalties are forbidden on various loans including loans from federally chartered credit unions, FHA and VA loans, and some other home-purchase loans. A prepayment penalty on your present mortgage could be the greatest deterrent to refinancing. The mortgage documents for your existing loan will state if there is a penalty for prepayment. You may be charged interest for the full month in which you prepay your loan.

Appraisal Fee
This fee pays for an appraisal which is a supportable and defensible estimate or opinion of the value of the property.

Other Misc. Fees
Other fees may be involved depending on the type of loan you have and other various factors. Some other possible expense you might have is the fee for a FHA mortgage insurance, VA loan guarantee, or for private mortgage insurance. There are a few other miscellaneous closing costs in addition to these.