How Much Should You Pay to Refinance?
I got an e-mail today from a woman who has been reading recent columns about refinancing a mortgage. She read that I paid very little to refinance and that another woman paid
It's a good question because it gets to the heart of why no one seems to have the same refinance experience. When you refinance, you face several different choices that will directly affect how much you pay. There are also several factors over which you have no (or almost no) control that will play directly into the refinancing cost.
Here are some facts about refinancing (and financing) mortgages that account for the differences in what people pay:
Lowering the interest rate means higher closing costs.
"Mortgages are a 'you pay me now or you pay me later' proposition," says
"No Cost" refinancing costs you very little,
But you'll get a slightly higher interest rate than what is otherwise being offered to the best customers. "It is difficult for me to do a 'no cost' loan if the loan amount is less than
Credit history and scores are reflected in price.
Today, the best interest rate and lowest closing costs are being offered to those with the highest credit scores (and best credit histories). Lenders will pull credit histories and scores from each of the three credit reporting bureaus,
Title insurance costs vary.
Title insurance can be the single most expensive line item on the HUD-1 (the government mandated closing statement form used in most residential loan closings), and the cost varies from state to state and even from county to county within some states. Some states have very good title insurance lobbyists, and the costs are higher than in others.
Lender costs are a big component of total cost.
Lepre says that of his refinance fees, the biggest closing costs are processing and underwriting fees, along with those fees charged by the escrow company (title insurance and escrow). "In our business model, the processing fee covers what happens in our branch, and the underwriting fee is to compensate for the overhead of running the mortgage bank," he adds.
Prepaid costs can vary.
Depending on the day you close, you'll have to prepay the interest you owe from that day (and including that day) through the end of the month. This gets tacked on to your closing costs. So, if you close on the first of the month, you'll have 30 days of prepaid interest. If you are getting a
So how much should you pay to refinance? As little as possible.
Lepre's "rule of thumb" is that you should refinance if you can lower your interest rate at no cost to you, even if it is just a half a percentage point.
"This may not make sense in the case of someone who is five years into a 15-year mortgage, but it makes sense for most folks who are less than two years into a 30-year mortgage," he explains.
"Once you decide to refinance, the decision about how much closing costs and points to pay is made by estimating how long you will have this loan. If rates are likely to fall again, it makes no sense to pay points. If you plan on moving in less than five years, it makes no sense to pay points."
- How Much Should You Pay to Refinance?
- Interest Rates Drop Again But Will Housing Market Perk Up?
- On Sale: Retirement Havens
- Appraisal Problems Kill Opportunity For Lower Mortgage Rate
- Our Big Fat Foreclosure Mess
- What to Expect When You're Closing on Your Mortgage Loan
- Shopping for a Home When There's Too Much to Buy
- Finding Second Home Bargains
- America's 10 Slowest Appreciating Housing Markets
- The Costs of Retiring with a Mortgage
- Prepaying a Mortgage: When Does It Maske Sense
- Shorter-Term Mortgages Make Sense for Some
- Thinking About Refinancing? Get Moving
- 10 Historic Places to Retire
- Do You Live in a High-Debt City?
- How to Get a Government-Backed, Zero-Down-Payment Mortgage
- Housing Demand Evaporates As Stimulus Ends
- Home Prices Likely to Slide After Sales Plummet
- 9 Reasons to Choose a New Home Over a Resale
- What will happen to the housing market?
- Pay Off Investment Property or Pay Off Primary Residence?
- 9 Smart Ways to Come Up with Down-Payment Cash
- More Federal Help for Struggling Homeowners
- Home Builders Not Driving Economic Recovery
- Packing for a Move Is an Art Unto Itself
- An Expert Looks at the Future Of Real Estate
- How Financial Reform Affects Home Buyers
- 10 Best Places to Reinvent Your Life in Retirement
- Housing Market Takes Another Step Backwards
- When Buying Distressed Property Know All Liabilities That Come With It
- 3 Ways to Invest in the Real Estate Rally
- Will the REITs Rally Continue?
- Home Prices Improve But May Soon Begin Sliding
- Home Sales Rebound From Record-Low Levels
- Downward Pressure on Home Prices Mounts
- Dirt-Cheap Mortgage Rates: Here for How Long?
- 6 Reasons the Housing Market Hasn't Recovered
- Distressed Home Sales to Sandbag Housing Revival
- Home Sales Poised to Drop in Coming Months
- Did You Miss Out on 2010 Home Buyer Tax Credits? It May Not Matter
- New Home Sales Plummet to Record Low
- The Housing Market's Unexpected Drop
- Builders Break Ground on Fewer Homes
- Home Builders Grow Gloomy As Tax Credit Ends
- Housing Market Predictions Change with Lousy Housing Sales Numbers
- Homebuyer Tax Credit Deadline May Be Extended
- Home Repossessions Hit New Record High
- Applications Point to Slow Summer Housing Season
- Bank of America Program to Forgive Loan Principal for Some Borrowers
- Home Prices Have Further to Fall: Here's Why
- 10 Cities for Retirement Property Steals
- What Home Sales Jump Means for Economic Recovery
- Why Housing is Headed for Second-Half Headaches
- Mortgage Rates Are at Historic Low, but LIBOR Is Rising
- Unloading a Timeshare No Simple Task
- Loan Modification Nightmare Continues As More Americans Pay Their Mortgage Late
- How to Identify Ideal Vacation Rental Property
- 7 Ways to Avoid a Crummy Real Estate Agent
- Rules To Improve Credit History and Raise Credit Score
- Confused About New World of Mortgage Finance? You're Not Alone
- Underwater on Mortgage But Too Much Skin in Game to Walk Away
- 7 Reasons to Downsize in Retirement
- Investment Property Costs: Add These Real Estate Expenses to Your Budget
- Don't Make These Real Estate Investing Mistakes
- Don't Make These Real Estate Investing Mistakes (Part 2)
- 12 Hidden Costs of Homeownership
- Don't Sign Over Title Until Your Name's Off the Mortgage
- Quitclaim Deed Not a Way to Get Mortgage Modification
- Nine Ways to Make Your Home More Appealing to Buyers
- Loan Modification Angst
- Obama Housing Rescue Tackles Unemployment & Underwater Loans
- How Much House Can I Afford? Calculating Home Affordability
- Home Sales Flat Before Spring Buying Season
- More Homeowners Pursue Remodeling Projects
- America's Most Underwater Housing Markets
- Energy-Efficient Updates Help Homeowners Save Cash
- Home Buying Checklist: What Savvy Home Buyers Need to Know
- Social Networking for Realtors Mortgage Lenders Buyers and Sellers
- Home Affordable Program Failing Homeowners
- Rate of Home Price Declines Slows, But More Drops May Be Ahead
- The Future of Home-Price Appreciation
- What Tanking Home Sales Mean for Economic Recovery
- Home Foreclosures Approach Peak Range
Real Estate - How Much Should You Pay to Refinance?
(c) 2010 Ilyce Glink