Costs of Home Loan Refinancing
The lower mortgage rates drop, the more you may have been thinking about refinancing your home. This can be a great technique to save money, and who doesn't love paying less interest? After all, interest is just an added cost, it provides nothing in return. Yet, if refinancing is such an attractive option, why don't you know more people who are doing it? You may wonder why people don't refinance every time the rate falls a quarter of a point. The answer to this lies in the costs of mortgage refinancing. This hidden factor can turn a saving proposition into a losing one, depending upon your individual situation. What are these costs, and how can you know when refinancing is the right option for you?
This is a great question, and the good news is, the answer is rather straightforward. First, of all, let's look at what costs you will incur to refinance your home. The most well known expense when it comes to getting a new mortgage, are the new closing costs you will incur. Just like the first time when you obtained your original mortgage, you will have to face closing costs this time around as well. While this can be an annoyance, it may still be worth your while to refinance even in spite of these.
How much are closing costs? The answer is, these vary widely from lender to lender. This is part of the shopping process you will want to undertake when considering a mortgage refinance. These costs are also not related to the rate. What does this mean? A lender that offers competitive closing costs won't necessarily have a higher interest rate. The opposite is also true. Paying a large closing fee upfront doesn't always mean a lower interest rate over the life of the loan. This is why comparing different mortgages is key. The typical range for closing costs runs the gamut. A few select companies focus on making a profit with bulk sales, charging less than a thousand dollars for their mortgage closing fees. The more common closing cost lies in the $1,000-3,000 range.
Are closing costs the only fees associated with a mortgage refinance? In most cases, the answer is yes. However, there are two other costs that sometimes come up when you attempt to refinance your home. These are not common, but you should be aware of the possibility. The first is the cost associated with getting your home inspected. Rarely, a lender will require their own new inspection report to ascertain that there are no hidden problems with the home. Why do they do this? If your home has a foundation problem for example, the resale value could be severely affected. As they are lending you money based on the value of your home, they want to know this information up front. Secondly, from time to time a lender will ask you to have your home's value appraised by a professional. However, these two situations do not occur frequently.
So, now you know everything about the cost to refinance your home's mortgage. With today's low rates, and the low fees some lenders offer, you can probably find a loan that will work well for you!