REFINANCE COSTS ON MORTGAGE

2007-03-08 10:33:40

( Financial )



The decision to refinance lies on whether refinance costs are lower than monthly repayments for the mortgage or whether savings of lower monthly payments is higher than refinance cost. A small amount of discount on refinance costs will provide the customer something to consider in deciding to refinance.

Mortgage Refinance

Mortgage refinance involves paying off the original mortgage and signing a new loan wherein you pay most of the same costs you had paid getting your original mortgage. Interest rate, number of points, and other costs related to loans comprise the total mortgage refinance costs.

Mortgage Refinance Packages

Lenders recently introduced packages on low cost or no cost refinancing to minimize or eliminate cash out expenses from refinancing applicants. However, lenders usually charge higher interest rate or include some costs in the amount to be refinanced.

Waiving of Application Refinancing Fees

Some lenders are willing to waive refinancing fees such as application, appraisal and legal fees. In exchange, however, applicants must agree to a higher refinancing rate than the prevailing refinancing rate being offered in the market.

Points for Lower Rate

Lenders usually offer a range of interest rates for different amounts of points. A point is equal to one percent of the loan amount and will be added to the refinancing cost. Lower interest rate offered on the mortgage means the higher points the lender will charge which subsequently provide higher refinancing costs to the applicant.

The decision on whether to choose interest rate with higher points or not depends on the length of time you will keep the mortgage. If you will stay in the house being mortgaged for a long time, paying additional points to obtain lower interest rate is suitable for you. Staying in the house for shorter time makes points expensive for you.

Traditional refinancing usually follow a rule of thumb to avail of refinancing only when the cost of refinancing is lower than the cost of availing the original mortgage. Further, it recommends to avail of refinancing only when current interest rate on mortgage is lower by two percent from the original mortgage.


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