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Refinancing your mortgage could potentially reduce monthly payments, turn stocks into cash, or change the type and duration of the loan. However, this process is not free. There are similar advance fees to when you first got a mortgage. When deciding to refinance, make sure it’s worth considering the cost.
How much does it cost to refinance?
The cost of closing your refinance depends on the size of your loan and where you live, but in general you can expect to pay 2-6% of your new loan balance. For example, if you are refinancing a $150,000 mortgage, you may pay $3,000 to $9,000 closure fees. Here is a breakdown of general closure costs:
| Closure costs | commission |
|---|---|
| Application fee | Up to $500 |
| Origin and/or Underwriting Fees | $300 – $500 |
| Recording fee | $25-250 depending on location |
| Evaluation fee | $300 – $500 |
| Credit check fee | $25 |
| Title Service | $300 – $2,000 |
| Survey fee | Average $2,300 |
| Lawyer/settlement fee | $500 – $1,000 |
In addition to closing costs, you will pay a new interest rate. This rate depends on many variables, such as:
- Credit score: If you have good credit or good credit, you usually receive a better interest rate.
- Lender: Lenders have different approaches to pricing loans and underwriting.
- Types of refinance: Usually you will pay a higher fee for cash-out refinance than for standard fees and period refinances.
- Loan size and duration: The smaller the loan and the shorter the terminology, the better your rate will generally be.
- Property Type: For example, if you are refinancing your primary residence, you will usually receive a lower fee if you are refinancing your investment property.
How much does it cost to refinance a government-supported loan?
Government-backed loans, including FHA, VA, and USDA loans, all offer Streamline Definance Options for qualified borrowers who may be lower than a typical refinance. Streamlined refinances have fewer hoops to jump. For example, credit checks or ratings may not be necessary.
To qualify for this option, you must not use refinance to gain fairness.
Meanwhile, government-supported loans come with their own fees. For example, with a VA loan, you will need to pay the funds if you are refinancing. FHA loans may require you to pay a mortgage insurance premium (MIP).
How to reduce the cost of refinance
If you are refinancing to lower your monthly payments, reducing your refinance payments will help you realize those savings more quickly. You can reduce the cost of refinance.
1. Improve your credit score
Just as your first mortgage has a credit score requirement, you must meet the minimum credit score for refinance. The better your credit, the lower your refinance rate. Among other strategies, paying off your debt can increase your credit.
2. Compare mortgage offers and fees
To get the best rate possible, compare some mortgage refinancing lenders. To feel more complete about the cost of a loan, look at the annual rate (APR), including interest and fees. Mortgage brokers can help you get a wider range of estimates. Always receive estimates from existing lenders in case you provide low-cost refinances or other recurring client benefits.
3. Negotiation of closing costs
Just like with your first mortgage, take a closer look at the loan estimate from your lender. Negotiating the closing costs can save you money, especially if you shop and have multiple refinance offers. Other quotes can also be used to confirm the unusually high prices.
4. I’ll ask for a fee exemption
Similarly, ask if your bank or lender will waive or lower your application or credit check fee, especially if you are an existing customer. Also, if you’ve done it recently, you may be able to forget about a new home assessment or property survey.
5. Original title Insurance company choice
Although many states regulate title rates, it may cost less to reissue your refinance loan policy than a title insurance company redoing a new company or policy.
6. Consider refinancing unclosed costs
If you have little cash, consider refinancing your closing costs. The name is a bit tricked because this refinance doesn’t have a closure fee. You just don’t pay when it closes. Instead, lenders either raise interest rates or fold closing costs into new loans.
Calculate breakpoints
If you are refinancing to lower your monthly payments, it is essential to know what your broken points are when your savings exceed your closing costs.
Let’s say the new, low fee will drop by $100 a month, and the refinance costs will be $3,000. This means it will take 30 months or 2.5 years to make your savings come true. If you are not planning to sell or refinance at that time, you may be worth refinancing now.
