The idea of refinancing a current mortgage sounds good for several reasons. Refinancing can allow the homeowner to take advantage of lower interest rates, lock in lower monthly payments, or maybe even provide both of these benefits.
When considering the idea of approaching a lender about refinancing the existing mortgage, it helps to understand there may be some fees or charges associated with the action. Here are some things you need to know about refinance closing costs and what to expect if you do accept the refinancing offer.
For those who have asked the question of what are refinance closing costs, it helps to understand that they include all the expenses related to the process of approving an application and proceeding with the processing.
That may involve checking the condition of the property and handling all the tasks associated with the establishment of the new mortgage arrangement. The type and amount of those costs will vary somewhat from one lender to the next. For this reason, it pays to find out what sort of costs are routinely charged and how the homeowner will go about paying them.
There are several common costs that are associated with refinancing an existing mortgage is referred to as a lender fee. In fact, there may be more than one type of charge that falls into this category. The lender may charge a fee for processing the application, as well as a fee for conducting research into the credit worthiness of the applicant. There may also be a fee for preparing all the documentation if the application is approved.
An appraisal fee is another common closing cost that will be assessed. This focuses on having a professional evaluate the state of the property and determine the maximum amount that the lender is willing to refinance.
A recording fee is sometimes assessed as a way to offset the expenses related to making sure the title and deed are updated and filed with the local municipality. To go along with the recording fee, the applicant can expect to pay for the cost of having the documents notarized by a legally recognized Notary Public.
Some lenders offer what is known as no-fee refinancing plans. In fact, there are fees included in the mortgage contract. What’s different about this approach is that the applicant does not have to pay the fees up front.
Instead, they are bundled in with the entire amount that the lender finances. During the first year or so, those fees and a portion of the loan interest are settled out of the monthly mortgage payments. Once they are settled, more of each payment goes to retire the principal.
Other lenders require that some or all of the closing costs be paid by the applicant up front. While this does create something of a financial crunch, the benefit is that those expenses are not included in the loan balance and the debtor is not paying interest charges on those totals.
Before agreeing to any offer for refinancing an existing mortgage, make sure the expense will provide a reasonable amount of benefits.
Unless the result will be more income available to allocate to other household expenses or reduce the overall debt by a significant margin, the homeowner would do well to keep making payments on the current mortgage and revisit the idea of a low cost refinance in another year or two.