Published Saturday, 24 February 2024

How much does it cost to refiance my mortgage

Refinancing a mortgage can be a good way to save money on your home loan and lower your monthly mortgage payments. However, it's important to understand that refinancing does come with costs, and you'll want to carefully consider whether it makes sense for your financial situation. In this article, we'll take a look at the various costs associated with refinancing a mortgage and how you can estimate the total cost of the process.

First, let's define what refinancing a mortgage means. When you refinance a mortgage, you're essentially replacing your current home loan with a new one. The new loan can have different terms, such as a lower interest rate or a different loan length, and it may be from a different lender.

Now, let's look at the costs involved in refinancing a mortgage. There are several fees and expenses that you'll need to pay as part of the process, and these can add up quickly. Here are some of the main costs to consider:

Credit report fee: The lender will pull your credit report as part of the application process, and you'll need to pay a fee for this service. This fee is typically around $80.
Appraisal fee: The lender will want to know the value of the home you're refinancing, so they may require an appraisal. This fee can range from $400 to $700.
Title search and title insurance: These fees cover the cost of verifying that you are the legal owner of the property and that there are no outstanding liens or claims on the property. The title search fee is typically around $100-900, and the title insurance fee is based on the value of your home.
Origination fee: This is a fee that the lender charges for processing the loan. It's typically a percentage of the loan amount, and it can range from 0.5% to 1%. For example, if you're refinancing a $200,000 mortgage, the origination fee could be as much as $2,000.
Points: Points are a type of upfront fee that you can pay to lower the interest rate on your mortgage. One point is equal to 1% of the loan amount, so if you're refinancing a $200,000 mortgage and you pay two points, you'll be paying an additional $4,000 in upfront fees.
Closing costs: Closing costs are a variety of fees that are due at the time you close on the new mortgage. These can include attorney fees, recording fees, and other miscellaneous costs. Closing costs can vary widely depending on your location and the specifics of your loan, but they typically range from 2% to 5% of the loan amount. For a $200,000 mortgage, this could be anywhere from $4,000 to $10,000.
Prepayment penalty: Some mortgages have a prepayment penalty, which is a fee that you'll need to pay if you pay off the loan before a certain date. This fee is typically only charged on mortgages with a fixed interest rate, and it's meant to compensate the lender for the interest they'll no longer be receiving. The amount of the prepayment penalty can vary, but it's usually a percentage of the remaining balance of the loan.