How Much Will A Refinance Cost You?
There are many benefits to obtaining a ReFi Mortgage; You can save money monthly, get some needed cash from your equity and consolidate debt! But, before you fill out that paperwork, it may be a good idea to understand how much it’ll cost you to get that Mortgage. So let’s take a couple of minutes to break down Mortgage Costs…
Out-of-Pocket Costs (aka “Upfront Costs”):
If you were to refinance into a new loan, total closing costs will typically run between 2%-4% of the loan amount. For example, if your total mortgage amount was $200,000 you can expect to pay between $4,000 to $8,000 to refinance your mortgage loan.
- There are certain service fees that will need to be paid to third parties. There are two categories: Services you cannot shop for (prices are dependent on the Lender) includes:
- Appraisal Fees (usually around $500-$600)
- Credit Report Fees ($50/per borrower)
- Services you can shop for:
Here’s where you can save yourself some money by doing your homework…
- Prepaids: These consist of advanced payments on fees associated with your mortgage (property taxes, interest, homeowner’s insurance, etc.). Even though lenders may estimate these slightly differently on your initial Loan Estimate, they will end up being the same on closing day, no matter which lender you choose.
- Points and/or Credits: Although rates are determined on a fluctuating market, it’s possible to maintain at least some control over how much you can spend on your Rate. You have the option of “buying-down you rate” using “points”. Points are 1% of the total mortgage amount and for each point you purchase upfront, it can lower your monthly interest rate (so even though you may spend more upfront, it can save you much more money in the long haul). Or, if you’d rather save more money upfront (at closing), you can take “Lender Credits” which will save you money on closing costs, in exchange for a higher monthly Interest Rate.
- Lender’s Costs: These fees include Lender’s fees, origination fees, and application fees. In order to protect yourself, also ask for a loan estimate upfront and for a breakdown of fees that you will be expected to pay.
Here are the payments you can expect to pay every month…
- Principal Payments: These are payments that go towards paying off your actual mortgage loan. Once the interest and PMI (or, for FHA loans, MIP) are paid off, the rest of the mortgage payments should go towards paying off the principal balance.
- Interest Payments: This is the rate that your bank charges you and over the course of time you will eventually pay it off. (If you have a fixed-rate, the rate should remain the same for the loan term. However, if you have an adjustable rate-ARM- the rate can change.) If your credit has gone-up, or there is an uptick in the market, it may be worth shopping around for a better interest rate; Hencing refinancing at a better rate.
- Taxes: Property taxes will be charged and vary depending on your location. Most lenders will give you the option of paying your monthly property taxes off with your monthly mortgage payment unless the property taxes are paid back on their own.
- Insurance: This includes homeowner’s insurance and, if you put down less than 20%, PMI (Private Mortgage Insurance) which is usually paid in temporary installments. In lieu of PMI, borrowers who are paying back an FHA loan will be paying MIP (Mortgage Insurance Premiums).
Are there ways to lower your new mortgage costs?
The short answer, “Yes.” You can try the following:
– Try sitting down and negotiating with the Mortgage Lender(s). Some of them may even offer to cover certain fees (for example, home appraisal fees or origination fees can sometimes be covered)
– Shop around for the best rates (interest rates and/or APRs).
– Work on improving your credit score; pay down loans (especially credit card debts), make payments on-time, catch-up payments you’ve fallen behind on, etc.
If you’d like to see what you can afford on a mortgage, check out our Mortgage Calculator.
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