With mortgage rates at rock bottom lows and staying at near these record lows for several weeks, the option of refinancing your current mortgage may seem like an enticing deal. And for many homeowners, it can save you thousands of dollars over the life of your loan. But that’s only if you are careful during the process of refinancing your mortgage. There are many hidden costs that are often bundled into a refinance and some of these costs are avoidable if you know what to look for. Here are six of the most common hidden costs that you should know about when you refinance your mortgage.
Loan Origination Fees
The loan origination fee is a common cost of refinancing your home. This fee is charged for evaluating and preparing your loan documents. You typically can’t avoid this fee, but you can shop around to different mortgage lenders and find the one that charges the least for the origination fees. These fees can generally be as much as 1.5 percent of the principal, but you should be able to find lenders that charge much less than that.
When you apply for a refinance on your mortgage, you are going to pay an application fee. This is a fee that you pay upfront and the lender will keep this fee even if you get denied for a mortgage refinance. An application fee generally costs between $75 and $300 depending on the particular lender and other factors, but you can usually negotiate this cost to drop it down or even have it waived in some cases.
The appraisal fee is not always necessary when refinancing your home. If you have had an appraisal in the last few years, your refinancing lender may waive this fee which can cost you and extra $300 to $700 depending on the size of your home, the area where you live and the mortgage refinancing company that is handling your loan.
Depending on the length of time you’ve owner your home, your refinancing lender may require an inspection of your home. The home inspector will check for termites, structural damage, pests and other things that could impact the overall value of your home. Inspection fees can cost up to $350 but if you have only had your home for a couple years, you may not need to pay this fee.
When you refinance your home, you generally have to pay fees for attorneys to conduct the closing of the deal. Lender fees can cost between $500 and $1,000 depending on how much has to be done for your particular refinancing transaction, the principal balance and other factors.
As with many mortgages, you may be charged a fee if you pay off your loan early. This is also true with refinancing your mortgage. When you refinance, be sure to read the fine print on the refinancing contract. You could be charged extra fees which could be as much as six months’ worth of interest payments if you decide to pay off your mortgage sooner than the contract has scheduled.
Refinancing your mortgage can save you thousands of dollars over the long run. But if you don’t consider these costs and add them into your expected charges, you may not be saving any money at all. Do your research and add up the costs before making your final decision to refinance.