When it comes to refinancing your home there are many factors at play. This includes your goals, your personal circumstances, and the current interest rate environment. Below the surface, however, are some hidden costs that need to be assessed before you make momentous changes to your mortgage. How much does it REALLY cost to refinance? Here’s what to watch for:

Refinancing Your Home Includes Point Fees

Points are interest payments in 1% increments based on your total loan amount. You may prepay these points (instead of paying them later) to lower your long-term interest cost. These prepaid points are called “discount points.” Along with the reduced total interest amount, many lenders will also decrease the interest rate on the loan by a quarter of a percent for every point purchased. To see how the purchase of points would change your interest amount, try using a mortgage point calculator.

Origination Fees

Origination fees are charged by lenders to cover the costs of processing your loan. In your paperwork, you may see these charges referred to as administration fees, underwriting fees, or document preparation fees. Origination fees will typically add 0.5% to 1% of the loan amount to the total cost to refinance. 

Mortgage and Title Insurance

In order to secure your refinance loan, your lender will need to confirm that you have title insurance coverage. When you refinance your home, the previous title policy associated with your old loan expires. Title insurance protects you from errors involving your paperwork or property records, and there’s really no way around it. 

You may also continue to require private mortgage insurance (PMI). The good news is that if your credit has improved since you purchased your home, or you have substantially greater equity, your PMI may be much less than what you’re currently paying.

Fees associated with securing a mortgage and title insurance usually cost up to $500 at the time of refinance.

Appraisal and Inspection Costs

Home appraisals and inspections ensure that your house is accurately valued in proportion to your loan. An appraisal assesses the value of your home, and an inspection search for hidden issues that may affect your home’s condition. Although you almost certainly had an appraisal and inspection when you first purchased your home, the lender will require these services to be performed again in order to secure your refinance. 

A new appraisal and inspection can add up to several hundred dollars to your cost to refinance.

Here’s The Good News About Refinancing Your Home 

Each lender you apply to will provide a loan estimate, so you can compare mortgage costs efficiently. Then, before finalizing your loan documents, you’ll receive a Closing Disclosure which will detail each fee. Go over these documents with a fine-toothed comb and ask any and all questions to avoid surprises. 

What is refinancing going to do for your financial future? Focus on the big picture and make sure the fees don’t offset your goals. A trusted financial advisor can help you navigate the numbers if needed.

References

• Nerd Wallet (undated) Mortgage Calculator: ‘Should I Buy Points?’ 
• Beverly Bird (Jun 2019) Origination
• Dan Rafter (Feb 2017) Yes, You Need Home Title Insurance — Here's Why.