Cost Of Refinancing: The Basics

2007-03-08 10:33:40

( Financial )



Refinancing your mortgage may be a good idea. Most homeowners refinance their mortgage to take advantage of very low interest rates and for lower monthly payments. However, you still have to deal with refinance costs before you can push through with refinancing your mortgage. Most of the fees that you have to pay are the same ones you paid when you got your original mortgage.

The cost of refinancing always includes the loan application fee. This is basically the fee mortgage lenders charge to process your application. Some have fixed rates, but most lenders charge a small percentage based on your loan amount. There is also a title search fee which is a search for ownership of your property in public records. You will still have to pay fees to your lender to get a copy of your credit report. The cost of refinancing can also include attorney’s fees.

Points are also part of the cost of refinancing. Basically, points refer to interest on your loan that you have to pay your lender in advance. A point is equal to a percentage of a loan amount. One advantage to paying your points is the low interest rate. The more points you pay, the lower your interest rate will be.

Prepayment penalties are also part of refinance costs. Although a lot of states prohibit the imposition of prepayment penalties, there are still some states that do not. You can look in your original mortgage agreement and check if you have to pay penalties for paying off your mortgage earlier. You may want to avoid prepayment penalties on your mortgage in the future.

When refinancing, you should be wary of abusive lenders. These lenders charge an exorbitant fee if you pay your loan early and impose very high interest rates even if you have an excellent credit score.


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