The Cost of Saving Money: Examining the Refinancing Fees!
Written by Daphne Tai, Fiona Gu
Now that you know have taken an interest in refinancing, you should know the costs of refinancing before you make take the plunge. When you refinance your mortgage, you usually pay off the original mortgage and sign a new loan. With the new loan, you pay most of the same costs you paid to get your original mortgage, such as settlement costs, discount points, and other fees. It is very likely that you may be charged a penalty for paying off your original loan early; this fee is called a prepayment penalty.
You should expect lenders to charge you the following fees:
Points: Points are a form of pre-paid interest that a lender charges at closing. The more points you purchase, the lower your interest rate will be over the life of your loan. However, the more points you buy, the more you pay at closing. One point equals 1% of your loan principal. The number of points imposed by your lender depends on the market condition and the prospective interest rate.
For example, if you have a $400,000 loan, one point would be equal to $4,000. If you wanted to buy two points from your lender, you would have to pay $8,000 up-front. On average, one point will reduce your interest rate by about an eighth of a percent (0.125%).
Always ask for points to be quoted to you as a dollar amount rather than just as the number of points – so that you will actually know how much you will have to pay.
For refinancing, it would approximately cost you from 1% to 3%.
Loan Origination Fee or Underwriting Fee: These fees are charged by the lender for processing your loan. They are frequently expressed as a percentage of the loan amount. Generally, these fees would be between 0.5% and 1% of your loan.
Appraisal Fee: An appraisal estimates the market value of your property. Lenders use appraisals to verify that the home you are purchasing is worth the price you are going to pay. The typical appraisal fee ranges from $150 to $400. You can waive this fee if you are staying with your current lender and if your last loan has been approved recently.
Private Mortgage Insurance (PMI): PMI protects the lender against a loss if you default on your loan. PMI is usually required for loans in which the down payment is less than 20% of the sales price or, in a refinancing, when the amount financed is greater than 80% of the appraised value.
Lock-In: This refers to a written agreement guaranteeing that you will receive a specific interest rate on your loan as long as the loan is closed within a certain period of time, such as 60 or 90 days. Usually, the agreement also specifies the number of points you would pay at closing.
It is important to be aware of the fact that mortgage interest rates change daily – sometimes even during the day. Therefore, if a lender gives you a certain quote on an interest rate, there is no guarantee that you will receive the same rate when you close on your loan. You have the option of locking-in a specific rate with a lender; however, because daily fluctuations in interest rates can be very volatile, the longer a lender locks in a rate, the larger the risk they are taking (since the market can move against them by raising interest rates). As a result, you will need to pay more – in points – for a longer lock-in period.
Escrow Fees:Escrow fees are associated with the lender company when they act as a neutral intermediary between all parties to insure that all agreed transactions are facilitated. If you owe escrow taxes and insurance, a pre-rated amount would be transferred from the current to the new mortgage account. Typically, escrow fees are approximately $500 to $1500. Before and after you refinance, you should confirm that all sums are accounted for and are in good standing.
Other Fees: Transaction, Settlement, or Closing Costs may also include, but are not limited to: (The following items should be regarded only as an estimate. Your actual closing costs may be higher or lower than the ranges indicated below)
Application Fee (the initial cost imposed for processing your loan request and checking your credit report): $75 to $300
Property Survey Fee: $125 to $300
Homeowner’s Hazard Insurance: $300 to $600
Attorney Review Fees (fees paid to lawyers or companies that manage the closing for your lender, and for other legal services related to your loan; you should obtain your own attorney throughout the whole transaction period): $75 to $200
Title Assessment (cost to inspect the public record for confirmation of real estate ownership): $150 to $450
Title Insurance (cost of insurance policy on your household): $225 to $400
Loan Origination Fees: 1% of loan
Home inspection Fees: $175 to $350
In general, the refinance loan application fee could range from $250 to $500, document preparation fees are about $200 to $400, lender’s closing fee could be from $725 to $750, and common settlements fees are about $350.
Some costs are avoidable if you refinance with your current mortgage lender. The lender may be willing to waive some of the fees such as title search, surveys, inspection, etc. The total expense for refinancing a mortgage depends on the interest rate, number of points, and other costs required when obtaining a loan. You should plan on paying an average of 3% to 6% of the outstanding principal in refinancing costs, plus any prepayment penalties.
You need to be aware that besides these fees, with a lower interest rate on your home loan, you would have less interest to deduct on your income tax return. Therefore, your tax situation should be considered when you make the decision. Refinancing with a lower interest rate may increase your tax payments and decrease the total savings you might obtain from a new, lower-interest mortgage. However, refinancing could save you up to 70% of the costs that are associated with obtaining a brand new policy.
Tip:You should talk to a professional advisor, such as a mortgage lender, real estate agent, an attorney and so on, before you decide to refinance.
may be willing to waive some of the fees such as title search, surveys, inspection, etc. The total expense for refinancing a mortgage depends on the interest rate, number of points, and other costs required when obtaining a loan. You should plan on paying an average of 3% to 6% of the outstanding principal in refinancing costs, plus any prepayment penalties.
Points: Points are a form of pre-paid interest that a lender charges at closing. The more points you purchase, the lower your interest rate will be over the life of your loan. However, the more points you buy, the more you pay at closing. One point equals 1% of your loan principal. The number of points imposed by your lender depends on the market condition and the prospective interest rate. 
Lock-In: This refers to a written agreement guaranteeing that you will receive a specific interest rate on your loan as long as the loan is closed within a certain period of time, such as 60 or 90 days. Usually, the agreement also specifies the number of points you would pay at closing.
approximately $500 to $1500. Before and after you refinance, you should confirm that all sums are accounted for and are in good standing.