Costs of Refinancing

Costs associated with refinancing can be divided into three different categories:

• Lender fees – which may include origination, application, points, appraisal, and credit report services;
• Third-party fees – these vary according to the state and the specific company with whom you choose to close your loan and may include fees for closing, title insurance, title exam, and recording;
• And pre-paid items - these are items taken at the time of closing but are not usually considered costs. These include items you paid for whether or not you refinance (for example taxes, interest, and hazard insurance).

When you refinance your mortgage, you usually pay off your original loan and sign a new one. With the new mortgage, you again pay most of the same costs you paid to get your original mortgage. These can include settlement costs, discount points, and other fees. You also may be charged a penalty for paying off your original loan early, although some states prohibit this. The total expense for refinancing a mortgage depends on the interest rate, number of points, and other costs required in order to obtain the new loan. To get the lowest rate offered, most mortgage companies will charge several points, and the total cost can run between three and six percent of the total amount you borrow.

All together, closing costs usually can range from 2% to 3% of your loan amount and you will be given an estimate of your closing costs shortly after your application has been received. Any prepayment penalty on a loan being refinanced will raise the amount needed to close. If there is enough equity in the home, your closing costs may be included in your new loan amount to keep your out-of-pocket costs as low as possible. If you change the product type or loan amount, the estimated closing costs will change. If this should occur, be sure to ask how the changes will affect your closing costs.