Refinancing A Mortgage – Costs Associated With Refinancing

2007-03-08 10:33:40

( Financial )



When the current interest rates are falling, you may want to consider refinancing a mortgage. Be aware that refinancing a mortgage involves costs in taking out your new loan and must be considered.

The same types of costs as your original mortgage loan, costs on prepayment penalties, and front-end costs are some costs associated with refinancing.

Original mortgage loan costs

The application fee, discount points, credit check, home appraisal, survey, and title insurance policy are the same costs that you will have to spend when refinancing a mortgage. These closing costs can add up to several percentage points of the amount refinanced. Your existing lender (in the interest of keeping your loan) may offer to eliminate some of these expenses.

Costs on prepayment penalties

Check if your mortgage contract contains a prepayment penalty clause that requires you to pay a fee for repaying your mortgage before a specified period of time. The amount of penalty consists of a set percentage of your loan balance. It may be decreased or waived if prepayment occurs after five years. If there is a prepayment clause in your mortgage contract, you may want to wait until the period expires before refinancing a mortgage.

Front-end costs

Since you consider refinancing a mortgage to get a lower interest rate, the front-end costs (substantial savings in your monthly payments to make refinancing worthwhile) must be also be taken into account. These costs should be recovered so refinancing a mortgage will be justified. Staying in your house long enough helps you recover these costs and enjoy the savings made from refinancing a mortgage.

Shop carefully when refinancing a mortgage. Morgage rate changes quickly. Get information from lenders, brokers, and the Internet about loan terms to help you decide whether it is a good time to refinance your existing mortgage.


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