If you've thought about refinancing your home loan in the last few months then you've probably wondered what it would cost.
Getting a new home loan or refinancing an existing home loan does involve costs. The goal is to know exactly what costs to expect and what the appropriate amount should be for each one.
You might be wondering about the so-called "no cost refinance." Well, it doesn't exist. A no cost refinance means the fees are in the loan. This means there is no up front cost to the homeowner but there are still costs. It's just a different way of paying them. Instead of paying them all up front, you pay them over the life of the loan.
Despite a somewhat tricky play on words, the no cost loan option is the most popular. Most homeowners would rather hold onto their cash and work the costs into the new loan.
Why are closing costs a big deal? Sure, refinancing could lower your rate and your mortgage payment. You could increase your monthly cash flow and save yourself thousands in interest. But saving on interest and lowering your payment is just part of the story.
Refinancing should make sense from a break even standpoint. You need to find the point where the money you save makes up for all the costs associated with refinancing your home loan. So knowing what the costs are is crucial to making a smart financial decision.
Home Loan Refinance Closing Costs
Origination Fee - This is the main cost associated with getting a home loan. It pays the lender for their work in getting the loan setup. This fee is around 1% of the loan value unless you decide to pay more points for a lower rate in which case this number gets larger.
Underwriting and Processing - This fee is usually called on the carpet for being a bogus fee. It's a fee that goes to the bank for determining whether to do business with you or not. It is expensive to generate a loan and a lot of lenders do charge this fee as way to keep their rates competitive. If you get a free rate quote through Lenda you'll see we do not charge this fee.
Title Insurance - This protects you and the lender in the event something gets missed during the title search. The biggest risk that title insurance protects against is liens on the property.
Escrow - Lenders want to make sure you're paying your taxes. They often require that you send more money with each mortgage payment which they keep in an escrow account. If you didn't pay your taxes the county could seize your home and the lender might not get paid.
Notary Signing - There will be documents that need to be notarized. This fee covers all the costs associated with the notary.
Third Party Services
Appraisal - You can't get a home loan without getting an appraisal for the property. Lenders want to know that the home is worth the amount of money they are lending you.
Credit Report - Lenders will always pull your credit to ensure you have a good payment history and you aren't a poor credit risk. Keep your credit in good shape and you shouldn't have any issues.
Tax Service - The lender will hire an outside firm to ensure that you are paying your property taxes. They don't want to risk the county coming in to seize the property.
Flood Certification - The lender will want to have a flood survey done to see if your house is in a flood zone.
Overnight (Courier Fee) - This is the fee charged to transport your documents.
Recording - This is the amount the county clerk charges to make a record of the new lender's name. These changes are required.
These are not really closing costs. These are costs you would have to pay anyway.
Daily Interest - This is interest you pay in advance that will be applied to your first mortgage payment.
Homeowners Insurance - This is also paid in advance and will be put in your escrow account with the bank.
That is a quick rundown of the main refinancing closing costs. When you get a free custom rate quote at Lenda you get a breakdown of all these fees. We show you exactly what they are and how much they are. No surprises. Get a free rate quote now.