How much does it cost to refinance? With interest rates still near historic lows, many homeowners arecontemplating refinancing their mortgage. Why not? After all, negotiating for a lower interest rate saves you tons of money, right?
Well, yes and no. Got that?
The fact is, many homeowners are blindsided when they learn that there are a slew of refinancing costs that can hityour savings hard. And there’sthe hassle factor. After all, even though you’ve already been approved for the loan originally, lenders will want toreassess your credit historyandyour home once again before they agree to refinance your loan. That takes work (and paperwork), and you’ll have to pay to get these things done.
As such, whether you’ll save money refinancingdepends on your unique situation.
How much does it cost to refinance a home loan?
“Just because your neighbor refinanced doesn’t necessarily mean it makes sense for you to refinance,” says Staci tit*worth, a regional manager withPNC Mortgage in Pittsburgh.A lot of it boils down to howmuch you’ll save in interest. For example, a 3% drop in your interest rate willprobably save you plenty, but a 0.5% drop may not be worth the pain and paper shufflingit entails.
To help you weigh whether the refinancing costs will hurt you or be worth the hassle,we thought we’d clue you in to some of the lesser-known fees you’ll have to cough up to get the job done. (They vary by area; these are ballpark estimates.) And while some of these expenses arefixed based on your specific loan and personal finances (mainly credit score and income), others are negotiable. So don’t be afraid to see if there’s any wiggle room to save some money where you can!
Application fee
Cost: $75 to $300
This covers the costs of processing your loan refinance request, including the lender checking your credit report. You will likely have to pay this fee, unlike other fees on this list, even if your refiis denied.
Prepayment penalty
Cost:One to six months’ worth of interest payments
Some lenders will slap you with fees for ending youroriginal loan early. Prepayment penalties are typically assessed at 2% to 4% of the original loan amount. Your loan agreement should spell out whether you’re subject to prepayment penalties. (FHA loans do not have any.)However, you may be able to get these penalties knocked off—or at least reduced—by negotiating with your lender. If you’ve been a responsible borrower (i.e., you’ve made your payments on time and in full everymonth), you should have more negotiating power.
Appraisal fee
Cost: $300 to $700
When you got your original loan, the lender charged a fee to have an appraiser assess the home and make sure that the property was worth at least as much as the loan amount. The same procedure takes place when you refinance. Bonus: You’ll geta professional opinion on the current price of your home. Sweet!
Home inspection fee
Cost: $175 to $350
Even though you probably got a home inspection when you first bought your place, a lot can change over the years, so your lender will want to recheck the property for any new problems that have cropped up.One potential way to cut costs: Reach out tothe home inspector you used when you purchased the propertyand ask if you can geta discount for beinga repeat customer.
Title search and title insurance
Cost: $700 to $900
When you refinance, your lender will want to conducta title searchand gettitle insuranceas safeguards—just as itdid the first time around. After all, new liens on the property or other issues may have come into the picture since the first time this search was conducted. To save cash, dig up a copy of your original title report tosave the lendersome of the legwork of sifting through your home’s titlehistory from scratch.
Attorney review/closing fee
Cost: $500 to $1,000
Most lenders charge borrowers for fees paid to the lawyer or title company that conducts the closing. There isn’t much room for negotiating price here. Since theytypically charge a fixedhourly rate, you’ll need to figure this in when you’re considering how much it will cost to refinance.
Points
Cost: 0% to 3% of the loan principal
Time for a quick re-education. There are two types of points: origination points and discount points.Origination points are what the lender charges to cover the administrative costs of processing the loan. However, you may be able to negotiate this fee if you useyour original lender, who may be willing to offer financial incentives in orderto retain your business. After all, itdoesn’t want you going elsewhere for your loan.Advantage: you! Use it.
Now let’s move on todiscount points, whichare optional. But here’s why you should consider them: You’reessentially prepaying the interest on your new loan—which, in turn, reduces your monthly mortgage payment.If you’ve got a stash of cash you can put toward points, this is a great way to save on interest down the road.But you need to calculate your break-even point to determine whether or how many discount points you shouldpurchase, says tit*worth.For example, if you plan on staying in the home for five years and know that you’ll recoup the costs of purchasing the discount points in three years, they’re worth buying. Ask your lender to crunch the numbers to be sure.
Bottom line: whether or not you’ll save money really comes down to refinancing costs and whether they outweigh the benefits.
