Cost to Refinance
The cost to refinance is very important to figure out before moving forward. Without taking a close look at all the things that will need to be done it is easy to overlook something. Individual costs vary, but by making a detailed list of everything that applies to your situation you can easily figure out the total.
Refinancing means to finance again, this means you are literally going out and getting a new loan. You use this money to pay off your original mortgage, which closes it out. This is typically done so that you can secure a lower interest rate, to switch to a fixed rate, to cash out some equity in the home, or to make smaller monthly payments by getting a longer repayment schedule.
The first thing to be considered, because it could be the most expensive, is closing out your original mortgage. This can be the most prohibitive cost to refinance. You want to look over the loan terms and conditions you signed and see what closing costs there may be, specifically if there is a prepayment penalty. Not every loan has this, but many do. Prepayment penalties can easily be a few thousand dollars, so this is definitely the first cost to consider.
Next you’ll look at the expenses for opening up your new loan, which will be very similar to when you opened up the first one. You’ll need to look at the application fee, loan origination fee, appraisal fee, home inspection, title insurance, attorney fees, and miscellaneous courier fees and such that the lender may charge you. Some lenders won’t charge some of these fees, for instance, some lenders won’t require a home inspection on a refinance. You’ll want to ask the lender what fees to expect, but for planning purposes, budget for everything. It’s better to find out you overestimated.
While it’s best to make sure you get a solid estimate of what the cost to refinance will be it is typically somewhere between 3-6% of the loan amount, plus any prepayment penalties you may have to pay.
If you want to know more about actually doing this check out How Does Refinancing Work for more helpful information, including the article Explain Refinancing a Mortgage and the pros and cons of refinancing.
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