When you take out a mortgage refinance loan, you're required to pay closing costs for refinancing. The costs vary by lender, as well as location and other factors. Some lenders may advertise no-closing-cost mortgage refinance loans, but you'll always pay closing fees one way or the other.
If you don't pay them up front, you'll either pay a higher interest rate or the costs will be rolled into your loan. Here's what you can expect when it comes to closing costs for refinancing your mortgage.
Mortgage refinance closing costs are fees borrowers must pay when they secure a refinance loan. A refinance loan replaces your existing mortgage with a new one.
Some refinancing fees are charged by lenders, such as application fees and origination or underwriting fees. You'll pay others to third parties, such as credit check fees or appraisal fees, but they are still required. Lenders want to ensure you're a well-qualified borrower and your home is valued highly enough to guarantee the loan.
Average closing costs total $5,000, according to Freddie Mac. But yours may be much higher or much lower.
Typically, refinancing closing costs run between 2% and 6% of the total loan value. Bear in mind that some of the best refinancing lenders don't charge origination fees, which could lower your costs. On the other hand, closing costs could be higher if you decide to pay for extra discount points to buy down your interest rate. Or if you choose a mortgage lender that charges a high application fee.
When you refinance, you'll have to pay for a number of different expenses. Here are some of the refinancing closing costs you can expect.
Some lenders charge application fees of between $75 and $300. Many also charge a separate origination fee for the cost of underwriting the loan. This is typically between 0.5% and 1.5% of the total loan value. On a $250,000 refinance loan, your origination fee could run as high as $3,750.
Lenders will check your credit report to understand your borrowing history. The reporting agencies charge a fee of $25 to $50, which you will have to pay.
Your lender may require a careful evaluation of your property. It wants to know it's valued highly enough to offer sufficient collateral on the loan. This can include:
Flood certification is $15 to $25. It will determine whether the property is located in a flood zone. If so, you'll likely be required to pay ongoing flood insurance.
A title search identifies any outstanding claims on your property. And title insurance protects against loss in case a title search misses a defect. You can expect to pay between $400 and $1,000 for these services.
Closing costs of $500 to $1,000 may be charged by the attorneys or title companies that officially close on your refinance loan.
Some mortgage loans have prepayment penalties, meaning there's a fee to pay off your mortgage early. Prepayment penalties on conforming loans were prohibited on Jan. 10, 2014. However, if your loan is nonconforming or was obtained prior to that time, you may owe a prepayment penalty. It could be as high as 2% of your loan balance. The fee declines over time, so the longer you've had your original loan, the lower the fee.
Discount points are optional. You can pay extra at closing to reduce your interest rate. You can choose to reduce your interest rate by 0.25% for each point you buy. Points generally cost 1% of your loan amount. Refinancing rates are very competitive right now and discount points could reduce your interest costs even further.
You'll usually have to pay mortgage insurance if the loan amount is more than 80% of the value of your property. Insurance premiums are normally added to your monthly mortgage loan payment. But for some loans, such as an FHA loan, you may also have to pay an upfront mortgage insurance premium of between 0.5% and 1.75% of your loan.
Closing costs for refinancing are costs you must pay when you secure a new refinance loan to pay off your existing home mortgage.
Average closing costs for a refinance loan come to around $5,000 but yours will be determined based on the specifics of your loan. Closing costs must always be paid. Some lenders allow you to roll them into your loan balance or pay a higher interest rate to avoid upfront expenditures. No-closing-cost mortgages still involve fees. They are simply paid over time rather than up front.
Refinancing closing costs usually include:
You may also have to pay a prepayment penalty. This depends on the type of mortgage and age of your loan. You can also decide to pay discount points to reduce your interest rate. They typically cost 1% of your loan amount and reduce your loan interest rate by 0.25%. And you may have to pay upfront mortgage insurance premiums, depending on the amount you borrow relative to the value of your property.
Refinancing closing costs are determined by your lender and the amount borrowed. Average refinancing closing costs are $5,000 according to Freddie Mac. But they can run between 2% and 6% of the total amount borrowed. That means you'd likely pay anywhere from $5,000 to $15,000 to refinance $250,000 of mortgage debt.
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