When you are considering refinancing, you should always start by asking yourself a few questions:
- Does refinancing make sense for me?
- Why am I considering refinancing?
- Do I want to take some equity out of my home?
- Do I have to pay for my child’s education, debt consolidation, second home…etc?
- How much longer am I going to be living in my current home?
- Do I need to lower my payment for cash flow purposes?
Once you have asked yourself these questions, you should talk to a professional Mortgage Consultant to see if it still makes sense for you to refinance.
The Good Faith Estimate
Once you have talked to a Mortgage Consultant, they will give you a “Good Faith Estimate” which will indicate the costs involved. It is usually possible to roll all or some of these costs into your new mortgage, so that you won’t have to come up with the money out-of-pocket.
The costs are very similar to those involved in purchasing a home.
Origination and Discount Points
Paying points to buy down your interest rate, especially when refinancing, can be a good idea, especially if you plan to be in the home for more than 3 years (the typical amount of time it takes to recover paying the point(s). By paying points, you can further reduce your interest rate, in turn lowering your payment and reducing the amount of interest you will pay over the life of the loan.
An appraisal must be done on your home, to find its fair market value and condition. An appraisal generally costs $300-$500, depending on the type, size and location of the property.
These fees are charged by the lender to do your loan. For lenders, doing a mortgage is a very labor-intensive job, requiring lots of research and paperwork. If you recall when you did your last mortgage, you probably only filled out 5-10 pages of paperwork, but when you signed your mortgage, it was 1-2 inches thick.
Title Fees/Title Insurance
These fees are charged by the title company. A lender will not do a loan if there is no title insurance. Title insurance protects the lender from title issues that may arise down the road, that may negate their lien on your property.
You may see other small fees included like flood certification, endorsements and courier charges. Ask about these fees, and all others. Depending on state laws and the type of loan program you decide on, these fees and others may be applicable.
The bulk of prepaid expenses are used to set up your new escrow account. These are charges like homeowner’s insurance, prepaid interest, mortgage insurance and prepaid taxes. The amounts of these fees are going to depend on which day of the month you will close escrow, and what month of the year it is. These fees generally wash out because once your old mortgage is paid off, because your old mortgage company will send you a check for the remaining balance in your old escrow account.
Contact us and we can help you find which option is best for you!