Understanding the Cost of Refinancing Your Mortgage

by Karen Lawson
Loan Page Columnist

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You've owned your home for a while now, and current mortgage rates are rising. Should you refinance? You'll need to consider more than interest rates. Knowing the fees and costs associated with refinancing, and keeping your financial needs and future plans in mind, will help you decide if refinancing is right for you.

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There's More to Loan Shopping than Mortgage Rates

Of course, current mortgage rates are important when you are choosing a mortgage loan. In addition, there are costs and fees associated with making and closing your new mortgage. Your understanding of these costs will help you find the right loan.

Some of the factors that contribute to the cost of refinancing your mortgage loan include:

» Points: An amount expressed in a percentage of the loan amount paid in exchange for a lower interest rate. One point on a $200,000 mortgage would be $2000. Points are not charged on every loan, so shop carefully!
» APR: This is the cost of a mortgage loan expressed on an annual basis. The APR includes the mortgage interest rate, points, broker fees, loan servicing fees, and other allowable fees.
» Origination and Closing Costs: These are the fees your lender charges for your mortgage, along with the cost of appraisals, inspections, recording fees, title fees, and escrow fees. These fees are itemized on a settlement statement, sometimes called a HUD-1 form.
» Lock-in Fee (usually expressed in points, per above): In exchange for this fee, your lender agrees to "lock in" a specific interest rate for a specific period of time, usually 60-90 days.

Shop, Ask Questions, and Negotiate

Compare rates, charges, and loan terms. Ask plenty of questions. Mortgage loan worksheets available online can be helpful. Also, think about your future plans. How long you want to stay in your home can impact your refinancing decision. Finally, negotiate with lenders to get the best deal. When a lender asks, "Deal or no deal?" the answer is up to you!

Source
Federal Trade Commission

About the Author
Karen Lawson worked in the mortgage lending industry for more than fifteen years. She earned an MA degree in English from the University of Nevada, Reno.

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