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CostHelper > Personal Finance  > Real Estate > Refinancing a Mortgage

Refinancing a Mortgage Cost


How Much Does Refinancing a Mortgage Cost?

 
low costLow: $2,000 or lesshigh costHigh: 3-6% of total
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  Typical costs:
  • Refinancing a mortgage can cost as much as 3 percent to 6 percent of the amount borrowed, or $4,500-$9,000 to set up payments on a debt of $150,000, according to BSCAlliance.com[1] . That estimate includes a $75-$300 application fee, a $150-$400 appraisal, a $175-$350 home inspection, $75-$200 for lenders' attorneys fees and other charges.
  • Companies such as INGDirect.com[2] don't charge application, processing or other fees, lowering the cost of refinancing to about $1,500-$2,500. The trade-off is usually slightly higher interest rates.
Related articles: Closing a Home, Selling a Home, Homeowner's Insurance, Flood Insurance

What should be included:
  • Refinancing simply means replacing your current mortgage with a new one that has (you hope) better terms, such as a significantly lower interest rate, avoiding a balloon payment, cutting total costs by repaying the loan more quickly or other factors. FederalReserve.gov gives step-by-step instructions for finding the best possible mortgage, including a glossary of common terms and a detailed worksheet for comparing potential mortgage offers.
  • Some company-sponsored online mortgage "calculators" give a somewhat rosy view of the benefits of refinancing; MtgProfessor.com[3] lists the payoffs and potential hazards of refinancing, and provides a break-even calculator to accurately assess your situation. This site also provides a range of mortgage calculators[4] for almost every possible circumstance.
  • Traditional mortgage brokers make a profit by marking up the wholesale mortgage rates and consumers don't know the true cost of the loan until after the application is submitted. A new trend is upfront mortgage brokers, who disclose their total fee in advance, in writing; Sideroad.Com[5] gives an overview.
Additional costs:
  • Some "predatory lenders" urge refinancing when it's not in the homeowners' best interests or charge fees for unnecessary or nonexistent products or services; HUD.gov[6] lists tips to avoid loan fraud.
Discounts:
  • Refinancing some existing FHA mortgages can be streamlined[7] , which means less documentation (such as no appraisal and therefore no appraisal fee)--but setting up the new mortgage still costs money. The amount depends on the size of the loan and the lender's terms.
  • Your current loan payment may include mortgage insurance, which covers your lender, not you, and runs $500-$1,200 annually for a $200,000 mortgage You might be able to cancel this insurance when refinancing if your equity in your home is more than 20 percent; MtgProfessor.com[8] gives an overview.
Shopping for refinancing a mortgage:
  • MtgProfessor.com [9] gives a quick overview of possible hazards and four approaches: responding to a solicitation, using an upfront mortgage broker, using a fixed-market lender and shopping online. Some websites suggest applying to your current lender first, because the it will offer the best deal in order to keep your business.
  • Sites such as MortgageLoan.com[10] and LendingTree.com[11] provide several quotes. Be sure an online broker represents a number of lenders and not just one; Sideroad.com[12] gives tips and guidelines for using online services.
  • The Upfront Mortgage Brokers Association[13] explains this type of service and providers referrals to its members.
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External Resources:
  1.  www.bcsalliance.com/y_mortgage_refinance.html
  2.  /home.capitalone360.com/
  3.  www.mtgprofessor.com/Tutorials2/refinance_to_reduce_cost.htm
  4.  www.mtgprofessor.com/calculators.htm
  5.  www.sideroad.com/Mortgage/upfront_mortgage_broker.html
  6.  portal.hud.gov:80/hudportal/HUD?src=/program_offices/housing/sfh/buying/loanfraud
  7.  portal.hud.gov:80/hudportal/HUD?src=/program_offices/housing/sfh/buying/streamli
  8.  www.mtgprofessor.com/A%20-%20PMI/how_do_i_cancel_pmi_(i).htm
  9.  www.mtgprofessor.com/Default.htm
  10.  www.mortgageloan.com/refinance-mortgage
  11.  /www.lendingtree.com/
  12.  www.sideroad.com/Mortgage/online-mortgage-broker.html
  13.  www.upfrontmortgagebrokers.org/about-us/
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