If you’re planning to refinance, you may need to know these costs first.
It’s safe to assume that today’s historically low mortgage rates are enticing to homeowners who need to convert their adjustable rate mortgages (ARMs) to fixed rate mortgages in order to ease their monthly payment terms and not worry about dangerous interest rates that adjust annually. They may also want to consolidate their credit card debt and reduce the amount of the loan. But refinancing applicants need to consider the costs attached to their plans. It may take from $3,000 to $5,000 for a $100,000 loan these days to complete the processing. As such, it is important to know the fees that are involved. Fees vary from one lender to another for some reasons like the amount of work, good reputation of the firm in the industry and even speed of service.
The first expense would be the application fee that can run from $70 to $400.Some lenders wouldn’t say anything about this cost during your initial consultation but you’d later be surprised with the amount that will be asked from you. Some lenders would charge you separately for credit report fees. Home inspection costs $250 to $325 and along this is the Title Search used to verify the legal ownership of the house. In case there are mishaps the Title Insurance can cover up to a certain amount. The insurance provider may charge you up to $850. The appraisal fee which can go as high as $500 charged by an independent appraiser who will determine the current value of your home to know the right principal and monthly payments that you must make. The origination fee covers the lender’s services in the processing of your mortgage loan. It can range from 1 to 1.5 percent of the amount of loan. The private mortgage insurance is set from 0.5 to 1.5 percent of the loan value.
The loan-to-value (LVT) ratio determines the needed amount over the appraised value of the property. The higher the value, the stricter the lending. In most cases, LVTs of 80 percent or more have higher fees. The prepayment penalty can run up to hundreds of dollars if your loan is more than eleven years old. It’s one substantial cost that borrowers cannot complain about. Prepaid costs like points are imposed so that the lender can raise the yield of the mortgage note. It can be from 0.5 to 4 percent of the loan. An attorney will also revue your application and you need at least $100 for this.
Closing and agent fees are paid upon the completion which typically won’t be lower than $200. With the enormous upfront costs, “Dan Green of The Mortgage Reports Blog gives this advice, If refinancing presents a clear benefit to you, I'll recommend you do it as soon as possible -- rates are still volatile and could rise overnight to price you out. So, we take that bird in hand. Meanwhile, if rates fall after closing, maybe reaching that mythical 4.500 percent number, we'll simply reconnect and refinance again. We recommend on the other hand that applicants need to refinance today only if their current mortgage rates are above 6 percent. Otherwise, they’ll be at the losing end once these costs are charged.
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