Refinancing? Consider These Hidden Costs

Interest rates are still pretty low, so why not refinance that mortgage that you have, right? Eh…maybe not. When considering a re-fi, it’s important to look at all of the potential fees involved with the process. In the end, the money you save as a result of bringing your interest rate down a point or two might add up to zilch once you account for all of the other things for which you’ll be writing checks.

From Fox News:

A lot of it boils down to how much you’ll save in interest. For example, a 3% drop in your interest rate will probably save you plenty, but a 0.5% drop may not be worth the pain and paper shuffling it entails.

To help you weigh whether refinancing is right for you, we thought we’d clue you in to some of the lesser-known fees you’ll have to cough up to get the job done. (They vary by area; these are ballpark estimates.) And while some of these expenses are fixed based on your specific loan and personal finances (mainly credit score and income), others are negotiable. So don’t be afraid to see if there’s any wiggle room to save some money where you can!

Application Fee: Yes, you’ll still be applying for a new mortgage, so you’ll still have to pay for the lender to process your application. This can run you anywhere from $75-300.

Prepayment Penalty: You might be able to negotiate this one if you’ve paid your mortgage on time, but you still might have to pay 1-6 months worth of interest to your lender for skipping out on your previous loan early.

Appraisal Fee: The lender or bank will want a new appraisal of your property (even though you had this done when you initially bought the house). They want to ensure that the property is at least worth the amount of the loan you’ll be getting. Fox estimates this to be $300-$700.

Home Inspection: Yes, this is another one that you had done when you first bought your house, but the lender needs to make sure that nothing terrible has gone wrong since then, resulting in a decline in value. You can possibly negotiate a price if you use the same inspector you used the first time, but this fee can cost as much as $350.

Title Search and Title Insurance: Fox News had this to say: “When you refinance, your lender will want to conduct a title search and get title insurance as safeguards — just as it did the first time around. After all, new liens on the property or other issues may have come into the picture since the first time this search was conducted. To save cash, dig up a copy of your original title report to save the lender some of the legwork of sifting through your home’s title history from scratch.” Cost: $700-$900

Attorney review/ closing fee: This cost will be hard to get around, since your attorney’s fees are most likely hourly, but you will have to pay someone anywhere from $500-$1,000 to oversee this part of the process.

Points: “Time for a quick re-education. There are two types of points: origination points and discount points. Origination points are what the lender charges to cover the administrative costs of processing the loan. However, you may be able to negotiate this fee if you use your original lender, who may be willing to offer financial incentives in order to retain your business. After all, it doesn’t want you going elsewhere for your loan. Advantage: you! Use it.”