Hidden Costs in Refinancing Your Mortgage

Refinancing your mortgage seems like a good idea when you see the interest rate slip below what you had originally locked in for. But is it the best bet for you? The cost of refinancing your home will be based on interest rate, credit score, lender, and loan amount, but there are other costs you’ll pay as well.

Before you decide, check out the hidden costs you may not have realized are associated with a refinance.

How Much Does It Cost to Refinance Your Mortgage?

Here are some hidden costs you should consider when refinancing your mortgage.

• Mortgage App Fee

  When most people hear “refi” it sounds like you’re simply financing your home again. But you are actually closing out one mortgage and opening another. This means you will be paying a new mortgage application fee just as if you were buying a new home. Application fees vary but you can assume it will be somewhere between $250-$500.

• Appraisal

  As part of your refinancing, you’ll need to pay to get your property appraised again. Many people who bought during the bubble in Florida and then tried to refinance a few years later saw that their home had lost value and they didn’t have the equity that they thought they did. The market is coming back, and with the Fed rates still low, some people are seeing an advantage to refinancing now.

  However, if your appraisal shows that you have less than 20% of equity, you may be subject to paying private mortgage insurance upon refinancing. Keep in mind, an appraisal report will run between $300-$600.

• Doc Prep

  Most lenders charge for document preparation. The fees vary by lender but you can assume they will be anywhere from a couple hundred to several hundred dollars.

• Loan Origination Fee

  Again, this is a brand new mortgage. You’ll pay about 1% on the value of the loan. For example, a loan for $200,000 will run you about $2,000 on a loan origination fee.

• Title Search and Title Insurance

  If it’s been less than three years since your last title search on the property, check with your title insurance company to see if they will allow you to use it. If not, expect to pay between $200-400 for the search and about $1075 for title insurance for a $200,000 home in Florida.

  Remember, this is a new mortgage. It requires new title insurance for the lender and you may opt to protect yourself as well. If you buy your title insurance from the same company you used on the initial purchase of the home, you may be eligible for a reissue discount. Consult your title insurance company to be sure.

• Recording Fee

  New mortgage, new recording required with the county/city. Expect this to add between $25 and a couple hundred dollars to your refi costs.

Is It Time to Refinance?

Only you can say for sure but as a good estimate, assume refi costs will run about 1.5% of the principal loan amount. On a $200,000 home that means refinancing will likely cost you around $3,000. If you keep the same duration of your loan (30-years, for instance), figure out how much you’ll save each month. Let’s say the new interest rate versus the old will save you $100 a month. At that rate, it will take you 30 months to recoup your refinance costs.

The length of time you’ve been paying on your mortgage may also be a factor. Early on in your mortgage, more of your payment is placed against the interest, not principle. As you near the end of your mortgage those percentages are reversed. Make sure you understand how much of the principle you’ve been paying against.

When it’s time to refinance, contact a title company you can trust. Bay National Title Company wants to create a better closing experience for you.