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Mortgage Refinance Costs
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Before going into refinancing, you should decide if the new interest rate adjustment would increase your monthly payment or if it would be two to three percentage points higher than the prevailing rates offered by the existing loan. You should also see whether the payment is large enough to pay off the loan by the end of the original term and will the loan be paid fully by the end of the term. The answers to these will decide on the costs of refinancing. The costs will include many other charges. Depending upon all these you can decide on to go in for refinancing or not.
If you make up your mind to go in for refinancing, then you have to pay the following charges.
1) The application fee is a charge imposed by the lender and it covers the initial costs of processing the loan request and rechecking of credit report.
2) An appraisal fee pays for an appraisal which is supportable and defensible estimate or opinion on the value of the property.
3) Survey cost is needed for a thorough measurement of the property.
4) Home owners/ Hazard Insurance to protect the lender against possible damage to the house. A borrower can obtain this insurance and have proof of its existence to the loan closing.
5) Lender Attorney's review fee is paid to the lawyer or the company that conducts the closing formalities. This includes lending institutions, title insurance companies, escrow companies, and real estate agents, attorneys for buyer and seller and for legal services related to the loan.
6) Title search and title insurance charge covers the cost of examining the public record to confirm ownership of the real estate and the policy issued by an insurance company. If the company can present a re-issue rate then you can save up to seventy percent of the cost of a new policy. It will be better for you if you can use the same firm who has issued the present policy for reissuing the policy towards refinancing. This way, you may be able to reduce the cost of refinancing by almost 60 %.
7) Loan original fees and points are charged for the lender's work in evaluating and preparing the loan. Points are prepaid finance charges imposed by the lender at closing. This increases the lender's yield beyond the stated interest rate on the mortgage. One point accounts to one percent of the loan amount. For example one point of a 60000 loan is 600. However the number of points the lender charges can also depend on the market rates and interest rates to be charged.
8) A prepayment penalty is charged by lenders, which is often considered to be a negative factor by those who prefer to go for refinancing. The documents of the current loans would clearly state whether there is a provision for a penalty for prepayment.
On an average you would have to pay three to six percent of the outstanding principal as refinancing costs.
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