Are you stuck paying double-digit interest on a mortgage you negotiated long before rates began to plummet? If the answer is yes, then refinancing may be the answer for you. Refinancing will allow you to:
Negotiate a lower rate and lower your monthly payments.
Build equity more quickly by converting to a loan with a shorter term. (If you switch from a 30-year term to a 15-year term your monthly payments will increase slightly but you will save thousands of dollars in interest payments).
Use the money saved each month to pay off the mortgage more quickly.
Borrow additional funds to pay for home repairs or renovations.
Switch from an adjustable-rate mortgage to a fixed-rate mortgage.
Eliminate your private mortgage insurance (PMI) premium. House prices have increased significantly and it is possible, and likely, that the equity in your home has increased beyond 20%, making PMI unnecessary.
Incorporate high-interest debt into your mortgage to take advantage of lower interest rates and eliminate some debt payments. This will also create a tax-deductible interest payment and improves your credit rating.
Refinancing has many benefits, however there are fees involved. Fees range from $4,500 to $10,250 and can include:
Application fee - $75 to $300
This covers the cost of processing your application and reviewing your credit report.
Property appraisal fee - $150 to $400
This is a supportable and defensible estimate of what your property is worth.
Property survey - $125 to $300
Homeowner’s hazard insurance - $300 to $600
Lender’s attorney fee - $75 to $200
This compensates the lender’s attorneys for conducting the closing. Your attorney’s fees, if you choose to hire one, are additional.
Title search and title insurance - $450 to $600
This is an examination of the public records to confirm ownership and the cost of a policy insuring the policyholder against discrepancies in the title to the property.
Home inspection - $175 to $350
Loan origination fee - $1,500 (on a $150,000 loan)
This fee is much like a finder’s fee; payment to compensate the lender for evaluating and preparing the mortgage loan. The fee is 1% of the loan amount.
Mortgage insurance ranging from 0.5% to 1% $750 to $1,500 (on a $150,000 loan)
Points - $1,500 to $4,500 (on a $150,000 loan)
This is a fee the lender charge in addition to interest payments. One point equals 1% of the loan amount. Lenders generally charge 1 to 3 points.
It is important that you know the full costs of refinancing, before you can truly evaluate the value of refinancing to you.
