For millions of American homeowners, mortgage payment is one of their greatest financial obligations. Given the record lows in mortgage rates this year, it's no wonder people are interested in the option of refinancing their homes.
Rather than just focusing on the potential to save hundreds per month, it's important to understand how much it costs to refinance. We wanted to outline the basics so that you have a good starting point for your refinancing decision process.
How much does it cost to refinance a mortgage?
Mortgage refinancing is the process of replacing your existing mortgage with a new one. There are several types of mortgage finance loans that require different considerations, such as: B. Withdrawal Refinancing. Either way, it is important to work with your mortgage lender to find out if refinancing is worthwhile for you.
The following are the main types of fees you can expect when refinancing your mortgage. Depending on the situation, you can expect to pay upfront fees of between $ 5,000 and $ 10,000.
The cost of each fee varies widely depending on the type, size, and location of your home. You also need to consider your creditworthiness and other aspects of your personal financial profile. Also, refinancing fees vary between states and lenders.
Refinance closing costs
Type of fee
Loan origination fee
0.5% – 1% of the loan amount
$ 300- $ 400
Credit Report Fee
$ 30- $ 50
Property insurance fee
$ 500- $ 1,000
Government enrollment fee
$ 30- $ 50
Real estate surveying costs
$ 300- $ 800
Home inspection costs
$ 300- $ 600
Flood certification costs
$ 15- $ 20
Prepaid Interest Fees
Varies depending on the interest rate and the completion of your loan
Tax service costs
One point costs 1% of your mortgage amount
Loan Repayment Fee
$ 50- $ 65
Through a cost-benefit analysis with your lender, you can determine whether the short-term financial burden of the refinancing is realizable. As with any financial endeavor, you need to do your due diligence.
It should be noted that some refinancing costs are tax deductible according to certain criteria. For example, you can usually get tax deductions on mortgage interest and closing costs.
Questions to ask yourself before refinancing
Before making your decision, review your long-term goals to see if you can justify the cost of refinancing a mortgage. Ask yourself important questions about how much you will actually get from refinancing your loan or not.
1) Will the investment pay for itself?
Wonder how long it will take to get back the cost of refinancing your home. Consider your ability to break even in a timely manner. For example, it makes sense if you want to stay in your house for the long term and can break even in a few years. If you're moving in a year or two, you might want to reconsider refinancing.
2) Is Your Loan Seasoned?
Your loan is considered seasoned if it has not been in place for at least a year and the borrower has a reliable payment history. If you have five to ten years to pay back a 30 year mortgage, the refinance may not really benefit you.
For example, if you lose your potential savings through additional interest costs, you will likely lose more through refinancing only. On the other hand, refinancing can be a good option if you can make sure you don't lose money on interest fees.
3) How can I reduce my refinancing costs?
Before you refinance your mortgage, focus on improving your creditworthiness and debt to income ratio. You are in a strong negotiating position to get the best possible price. It's worth asking if you can forego the review fee, which could save you hundreds.
If a property was recently appraised and prices haven't changed significantly, your mortgage lender may be able to forego a revaluation. Also, don't hesitate to check out the comparison shop for discounted third-party fees.
Will the refinancing affect my balance?
Refinancing a mortgage can have an impact on your credit score, if not permanently. If refinancing makes sense for your situation, then you shouldn't worry about it affecting your creditworthiness in the long run. This may not be the most ideal situation, but it is extremely common and usually relatively easy for your creditworthiness to recover.
By consolidating your loan inquiries, you will prevent multiple hard inquiries from setting red flags. You can also work with your lenders to avoid them having to manage all of your balances, which can lower your credit score.
From a long-term financial planning perspective, home refinancing can be a smart move. Even if you are considering refinancing your car loan, it makes sense to consider refinancing your home first. Finally, with a mortgage refinance, you can get more cash in your pocket due to lower monthly payments.
Since funding lowers your monthly bills, you'll want to be strategic about where to go with your additional funds. Are you saving for tuition, a wedding, or retirement? Are you working on getting out of debt? Refinancing is a great time to get serious about budgeting and prioritizing your personal financial goals.
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