Reduce Your Refinancing Costs: Get to Know These Fees
Everyone pays fees when they refinance a loan, but did you know that those fees are negotiable? When you're refinancing, pay close attention to the bottom line. Fees can add $3,000 to $6,000 to the costs of refinancing, which means it could take longer for you to get full advantage of the lower interest on your mortgage.
The key is to get to know the fees and their normal ranges. Sometimes if you're refinancing with your own lender, he can lower those fees or waive them completely. Other times you may be able to negotiate a lower rate if you use the same vendor.
For example, title search and title insurance fees, which can range from $450 to $600, may be negotiated into a lower range if you can work with the same title insurance company. The title insurance company may be willing to update your current policy for a much lower fee.
Title insurance covers any loses related to a discrepancy in the property ownership. Since your property hasn't changed hands, a title search needed to update the insurance should not take as much time as the original title search, so sometimes you can get the fees reduced.
Title insurance covers any losses related to a discrepancy in the property ownership. Since your property hasn't changed hands, a title search needed to update the insurance should not take as much time as the original title search, so sometimes you can get the fees reduced.
Other key fees you should pay close attention to and possibly negotiate include:
Application Fees These are the initial costs a lender charges to process your loan. They can range from $75 to $300 or more. You may be able to negotiate these downward, especially if your refinancing through the same lender.
Appraisal Fee These fees can range from $150 to $400. If you have enough equity in the home, sometimes your lender will be willing to work with an electronic appraisal rather than a full appraisal with someone coming to inspect the home. That can save you $100 or more.
Survey Costs These can run $125 to $300. If you're working with the same lender they may be willing to waive these fees, since they have a survey on the property from the first closing.
Lender's Attorney Review Fees These can range from $75 to $200 or more depending upon who conducts the closing for the lender. Your closing can be conducted by the lender, title insurance company, escrow company, real estate brokers or attorney. It depends upon the laws in your state. You can usually get the cheapest fees by closing using your lender or title company. Since you're not involved in a real estate sales transaction, you may be able to save money by not insisting that an attorney close the loan, but be sure you're comfortable with reading the loan documents yourself.
Prepayment Penalty Be sure the loan you have does not include a prepayment penalty. Also, be sure the new loan you're taking doesn't have one. A prepayment penalty is a fee charged if you pay your mortgage off early. Never agree to a mortgage with a prepayment penalty. It can cost you thousands of dollars to get out of the loan. Always ask if there is a prepayment penalty before signing any loan documents.
Lender's Fees These are also known as "garbage fees" and can cost you between $650 and $800. They include fees for processing, underwriting, document preparation, as well as administrative and funding fees. You may also see fees such as tax service fees, wire, and flood certification fees. You will find them on all loans, but may be able to negotiate fees lower when you get lenders into a bidding war for your business.
Mortgage Insurance If you don't have at least 20 percent equity, you will need to pay private mortgage insurance fees, which can range from 0.5 percent to 1 percent of your loan per year. If you're getting an FHA loan there's mortgage insurance fees too, as well as an upfront charge of 1.5 percent of your loan but that fee can be added to your loan balance instead of being paid in cash at closing.
Another key cost that can add thousands to a refinancing are loan origination fees and points. Generally you're best off looking for a loan with no points when refinancing. A point is equivalent to 1 percent of your loan principal. For example, for a $100,000 loan you'll pay $1,000 in cash up front for one point.
But, even if you do get 0 points on a loan you'll probably still have to pay a 1 percent loan origination fee. You may be able to negotiate that to 0.5 percent or 0.75 percent with a lender looking to get your business. It can't hurt to ask.
One cost that is not negotiable at all are the taxes you'll need to pay on your loan to the state in which the property is located. Be sure you know what these costs are and add them to any cost calculations for the refinancing.
Keeping your fees low means you'll take a shorter period of time to pay off the costs of the fees through the interest you'll save. Once you're saved the full cost of the fees for your refinancing, the rest of the interest savings is gravy. You can figure out whether or not a refinance is worth it for you using this refinancing calculator.
As you compare your offers, set up a spread sheet with all your anticipated closing costs. That way as you get bids from lenders you can be sure they are giving you a full list of costs. Sometimes lenders will neglect to mention all costs to make their bids look better. Before accepting an offer, be sure the costs they did not list will not be charged at closing.
Lita Epstein has written more than 25 books, including The 250 Questions Everyone Should Ask About Buying Foreclosures.