costs of refinancing

Determining how much it costs you to refinance an existing home mortgage loan will be the major factor in deciding whether or not you want to consider this, as well as the type of mortgage you choose. Because you are applying for a new loan, the costs involved will be much the same as those you faced when you first bought your home.

Again, you can expect your closing costs to be roughly 3-6 percent of the amount you will be borrowing - either the remaining principal of your current mortgage, or, if you are seeking a cash out mortgage, the greater amount of the new mortgage. Some lenders, however, have begun offering low-cost or no-cost refinances, meaning you don't pay as many (if any) closing costs. If you choose this type of refinancing, consider the costs involved in obtaining a new loan.

The more it costs you to obtain your new loan, the longer it will take to recover that cost in the monthly savings your new loan might give you. The most significant cost will probably be the points you pay to the lender. Much like the first time around, this up-front interest can generally be exchanged for a lower interest rate on the loan. How much you want to pay in points - and save in interest - will depend on how long you plan to keep your new mortgage. The longer you keep it, the more initial discount points could save you overall. However, if you plan to move in a few years, you might want to negotiate your way out of paying points.

Also, there are a number of other costs involved in taking out a mortgage loan, such as appraisal fees, credit checks, legal fees, inspections, title search and insurance and taxes. These fees can easily add up to several thousand dollars, so you'll want to research your options and avoid as many as possible. For example, if you refinance with the same lender who holds your current loan, you might be able to update your title insurance instead of taking out a new policy. Or you might persuade them to waive or reduce application and credit check fees.

here is a list of the fees you might pay, along with explanations of each:

application fee
This charge imposed by your lender covers the initial costs of processing your loan request and checking your credit report.

title search and title insurance
This charge will cover 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.

lender's attorney's review fees
The lender will usually charge you for fees paid to the lawyer or company that conducts the closing for the lender. Settlements are conducted by lending institutions, title insurance companies, escrow companies, real estate brokers and attorneys for the buyer and seller. You may also be required to pay for other legal services relating to your loan which are provided to the lender.

loan origination fees and points
The origination fee is charged for the lender's work to evaluate and prepare your mortgage loan. Points are prepaid finance charges imposed by the lender at closing to increase the lender's yield beyond the stated interest rate on the mortgage note, with one point equaling one percent of the loan amount. The total number of points a lender charges will depend on market conditions and the interest rate to be charged.

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

prepayment penalty
The penalty for an early payoff of an existing mortgage varies by state, the type of lender and the type of loan you have. Prepayment penalties are forbidden on some loans, including loans from federally chartered credit unions, FHA and VA loans, and some other home-purchase loans. The mortgage documents for your existing loan will state if there is a penalty for prepayment. In some loans, you may be charged interest for the full month in which you prepay your loan.

miscellaneous
Depending on the type of loan you have, another expense you might face is the fee for a VA loan guarantee, FHA mortgage insurance or private mortgage insurance. Additionally, costs for credit check, attorney's fees, inspections or other local fees and taxes may be assessed.

Needless to say, you'll want to carefully shop around in order to save all you can. And don't be afraid to negotiate, as the lender may be willing to waive some of the costs, especially if the work relating to the mortgage closing is still current.

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