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When you refinance your mortgage, you usually pay off your original mortgage and sign a new loan. With a new loan, you again pay most of the same costs you paid to get your original mortgage. These can include settlement costs, discount points, and other fees. You also may be charged a penalty for paying off your original loan early, although some states prohibit this. The total expense for refinancing a mortgage depends on the interest rate, number of points, and other costs required to obtain a loan. Try to calculate a breakeven point: this is where your monthly savings equals the cost of your refinance. For example, if you incur 5,000 in closing costs and save $250/month your breakeven point is 20 months. If you stay in the property at least 20 months, this refinance would make sense. Prepayment penalties can add to mortgage refinance costs. If you have a prepayment penalty in your loan you must pay that penalty amount before you can refinance. Often it is better to wait until the prepayment penalty period ends before refinancing. This will all depend on what state you are in, but closing cost fees will usually be different for every lender some incur other fees that the other wouldn't. It is best to discuss these with your loan officer. The type of loan program you choose and the lender you go with can affect your refinance closing costs. You may choose a zero closing cost loan or choose to roll your closing costs into the loan amount. Ultimately, one should decide if the payment and the loan program works for them. In most cases, closing costs can be written off on your current year tax returns (consult your local CPA or tax preparer for more details). Did you forget to pay your property taxes? If no, most title insurers will require it be paid current as a condition of obtaining title insurance. This may mean less cash out or more cash required at closing. If your taxes were paid recently be sure to keep a copy of the receipt as the update may not yet be apparent to the title company. Some states levy heavy taxes on mortgages, which can significantly add to the closing costs. However, some states may also allow a homeowner to avoid paying mortgage tax for a second time during a refinance. Consult a mortgage broker in your area to find out if you can save on the mortgage tax portion of the refinance settlement costs. If you have significant monthly debt, it is almost always a good strategy to eliminate that debt using the equity in your home. The typical refinance customer usually saves hundreds of dollars or more by using their home equity to pay off their higher-interest debt, such as credit cards, student loans, car payments. Title expenses, which are third party fees paid to inspect and insure the chain and sanctity of your home's title, make up a large portion of your closing costs in a refinance. Using your current title company may entitle you to a substantial discount on your closing expenses. All costs associated with your refinance will be reflected on your good faith estimate (GFE). The GFE will itemize each of the costs associated with the loan, and can be subject to change if the terms of the loan change. When comparing loan programs and interest rates between companies, always be sure to get a copy of the GFE. This way you will be able to see the overall costs of the refinance between the companies. Your mortgage professional should consider the new costs involved in your refinance to determine if refinancing is in your best interest. The refinance should make obvious sense. If you are only going to save a small amount of money each month, you will probably be spending a lot more money on the new loan than you will be saving. When you refinance your home loan their will generally be title charges associated with your refinance. These charges will be associated with the title company handling your mortgage transaction. Some of the title fees may or can be: settlement fee, title insurance, title binder, closing fee, overnight delivery fee, wire fee, notary fee, and a package handling fee. There are other title fees that can be associated with your refinance also and these fees can be charged by different title companies in different variations. One title company may charge a closing and settlement fee and another may only charge a closing fee. This is why it is a good reason to look over your good faith estimate to make sure the title charges seem reasonable. Question anything you are unsure of and what it is for. Refinancing can sometimes be accomplished without closing costs. The interest rate will be higher but, depending upon how long you plan to keep the loan, it may work out to your advantage. Ask your mortgage professional to discuss both alternatives with you and lay out the advantages and disadvantages of each approach for your specific situation. Be sure that you compare the final closing fees with your original GFE. If the closing costs vary by a wide margin you have three days to cancel the transaction. Also remember Third parties fees consume the most money. The broker must estimate them for inclusion in the Good Faith Estimate, however. On-line lenders who show all settlement costs are very unlikely to low-ball.
Mortgage refinance costs are an additional consideration in determining whether to refinance. Your mortgage broker can analyze the costs and change in interest rate of your mortgage to determine your savings from refinancing. Although it may cost more money, consider paying discount points to lower your rate if you are going to keep the mortgage for a long time. Most people refinance every few years, so make sure you don't plan to move or refinance in the near future if you pay points. Don't go overboard buying down the rate. Usually paying only a few extra points make sense, if any. Consult a mortgage professional for more information.
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