Some lenders make it seem as though refinancing is a swift, pain-free and low-cost process. In reality, however, this is far more than simply filling out a few papers and getting a lower interest rate. There are a number of important factors and secondary costs that must be considered. If you aren’t careful to account for all of the refinancing fees that you’ll have to pay, you could end up locking into an agreement that provides limited short and long-term benefits. Read on to learn more, brought to you by a leading Downtown San Diego real estate company.
The Cost of Applying for a Mortgage
When you apply for a new mortgage, you’ll have to pay between $200 and $500 just to have your new loan application reviewed. Refinancing closes out your old mortgage and places your remaining debt under a new loan. This is a factor that’s definitely worth including in your loan comparison process.
Home Appraisal Costs
Before a lending company will approve you for a new loan, you’ll have to have your property appraised. An appraisal can cost as much as $600, but may be as low as $300 to $400. It is also important to note that your appraisal will determine whether or not now is the best time to finance. If the appraised value of your property has dropped and your new loan to value ratio is greater than 80 percent, you could be responsible for paying mortgage insurance or putting down extra cash in order to lower this number.
Document Preparation and Recording Fees
In addition to paying a fairly hefty loan application fee, you’ll also have to shell out cash for the completion of all loan documents and to have these documents officially recorded. Recording fees can increase your refinance bill by as much as $200 and the costs of document preparation typically fall between $200 an $500. Getting a new loan can also create the need for an all new title search and new title insurance, depending upon the demands of your lender.
Loan origination fees are usually about 1 percent of the borrower’s full loan value. If you want to a refinance a principal balance of $150k, you’ll pay about $1,500 in loan origination fees. When you receive your Good Faith Estimate, however, you may find opportunity to negotiate for a lower origination fee if your lender is flexible.
Amortization, or the way in which your monthly mortgage payments are used to resolve your debt, is one of the most commonly overlooked costs of refinancing. When you first start paying on a loan, the majority of your loan payments are applied towards loan interest. As time passes, however, more of your payments are put towards the principal balance. When you refinance your loan, your amortization starts anew. This means that it will take time before you’ll start seeing any significant decreases in your principal balance under your new loan term.
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