It seems like everyone you meet has just refinanced their home mortgage. And with the Mortgage Bankers Association reporting that the 30-year fixed mortgage rate decreased 9 basis points to 6.15% in November, the pace shows no real sign of slowing.
So what should you expect to pay a lender for refinancing your home? Whatever you pay, if you plan to stay put for a few years, those refinancing savings should cover initial costs within about two years. However, if it will take four years to recoup your costs and you plan to sell the home in three, refinancing might not be the right move.
To judge if refinancing is right for you, convert the total cost into a percentage point, and then use the point divided by the rate drop to determine the number of years it would take to profit from the refinance.
On a $500,000 loan, for instance, if your total refinance cost is $4,000 and your rate drop is 0.5%, divide the total cost by the loan total ($4,000/$500,000 = 0.8 point) and then divide that figure by the rate drop (0.8/0.5 = 1.6) to get the total number of years (18 months, in this case) you would have to stay in the home to make back the cost of refinancing.
One way to find out about your overall costs is to ask for a menu of estimated closing costs that outlines various refinance fees. And ask about cash costs due when the loan closes and which fees ‑‑ property taxes, for instance ‑‑ can be rolled into the life of the loan.
As a rule, refinancing costs can range from 3% to 6% of the amount of the loan.The application fee, usually about 1% of the total loan, ranges from $300 to $500 and covers expenses associated with processing the loan and checking credit reports ($20 to $50). Fees associated with appraisals (cost: $150 to $400).
By comparison, Homeloan123 offers free credit reports and charges a flat $350 for appraisals on single family residences. Moreover, our in-house escrow costs a flat $350 and includes the convenience of having a mobile notary sent to you.
Because a refinance is essentially a new loan, the lender will require a new title insurance policy, which protects the policyholder against losses caused by discrepancies in the property title in conjunction with a title search to examine public records, laws and court decisions to prove that the seller can transfer free and clear ownership. Usually paid in one lump sum at the time the policy is issued.
You don't need a new owner's policy when refinancing, but the lender will require you to purchase a new lender’s policy. Still, ask the company carrying your present policy if it can re-issue the policy at a special rate.
Before refinancing, check your credit report and clear any discrepancies. The cost is minimal and the better your credit, the better your chance of getting a lower rate.
For refinance, the most popular option is a no-point, no-fee loan, which features no extra fees or costs added on top of your loan. With the no-fee option, refinancing makes sense, even with a 0.125% rate drop, no matter how long you stay in the property.
With so many financing options, it is hard to know who to choose. So get referrals from friends, family, real estate agents and mortgage brokers. Ask them to walk you through the refinancing process. Ask what you should expect. Make sure you are dealing with a reputable firm. And make sure you feel comfortable with the lender you choose.
And remember, whatever option is right for you, HomeLoan123.com is ready to help.
Keeping you informed.
Doctor Mortgage
To ask HomeLoan123.com’s Doctor Mortgage a question, e-mail: info@homeloan123.com
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