Refinancing your mortgage is a great way to shorten your loan term, lower your interest rates, or cash in some equity from your home. But just as your original home loan came with a range of expenses and fees, refinancing also comes with a number of costs.
If you’re thinking of refinancing your mortgage, it’s important to understand how much it will cost and consider ways to lower your refinancing fees. Today, we’ll go over the numbers to help you estimate how much it might cost (and save!) you.
Why should you refinance?
Before we get into numbers, let’s discuss all the money-saving reasons behind refinancing.
- Reduce your interest rate. When housing market rates drop, refinancing can reduce your monthly payments as well as the amount in interest you pay in the long term. The total amount you could save will depend on your original rate and the associated fees/costs.
- Change the length of your loan. A shorter loan means you pay less in interest over time—but you can also lengthen your loan if you want to pay less per month. You’ll pay more over the lifetime of your loan, but it’ll free up some cash immediately.
- Access your home equity. A cash-out refinance lets you borrow back some of your built-up home equity while also lowering your interest rate.
- Switch from an FHA loan to a conventional loan. If your current loan is backed by the Federal Housing Administration (FHA) and you made a down payment of 10% or less, you may consider refinancing to avoid paying the mortgage insurance premiums attached to FHA mortgage loans.
- Changed an ARM to a fixed-rate. Adjustable-rate mortgages (ARM) start with an initial fixed rate for a short number of years and then change to a rate that’s usually higher and fluctuates year-on-year. This variable rate can sometimes adjust to a point that makes your monthly payments too high, so swapping to a fixed-rate mortgage can provide you with set payments and stability.
How much does it cost to refinance?
Typically, most homeowners will pay between 2-6% of their total mortgage loan amount to refinance. The exact types of fees and how much you’ll pay all depend on several different factors. These include:
- Your mortgage term
- Your mortgage type
- The size of your loan
- Your location & property values
- Your lender
When trying to decide if refinancing is worth it, you should also consider the fees you’ll likely be charged. Here are the most common fees included in refinancing costs, as well as a rough estimate of the price you’ll pay for these services.
||0.5-1.5% of loan amount
||Location dependent, up to $250
|Credit Report Fee
|Home Survey Fee
|Title Search and Insurance
How to Reduce Your Refinancing Costs
Many people may be put off by the fees and costs associated with refinancing, but it’s possible to reduce these costs—which can help you get the best deal and save money.
1. Improve Your Credit Score
Improving your credit score will make you eligible for lower interest rates when refinancing. You should start this process before you start applying for refinancing.
It’s important to regularly review your current credit report, check for errors, and have them amended if you notice problems or inconsistencies. Paying bills on time and paying off any outstanding debt will also help boost your credit rating. Take your score seriously—because lenders certainly do.
2. Shop Around
Don’t go for the first mortgage deal you see. Shop around and look at multiple lenders to find the best rates. You may wish to use a mortgage broker, who can find deals for you, or consider asking your current mortgage provider, as you may be entitled to better rates as an existing customer. Here at Associates Home Loan, we offer the best deals to Florida homeowners.
3. Negotiate the Costs
While some fees are fixed, others can be negotiated. Your lender may be willing to reduce or waive some costs such as application fees. If you feel that you’re not getting a good deal, speak up!
4. Consider a No-Closing-Cost Refinance
Some lenders offer no-closing-cost refis. These aren’t free deals, but you won’t have to pay at closing. The lender will either add these funds into the loan or raise your interest rate slightly to compensate.
This is a great option if you don’t have the funds to pay at the loan signing, but the downside is that you tend to end up paying more over the term of your loan, so it can offset some of the long-term benefits of changing your rate.
How to Determine if Refinancing Is Right for You
So you know why you want to refinance and you’re even equipped with some tips on how to get a better deal—but how do you know if refinancing is right for you?
Ask yourself these questions:
- What does the housing market look like right now? Is it more favorable than it was when I purchased my home?
- What are property values like in my area?
- How long do you plan to stay in your home? How long have I lived in this home already?
Refinancing tends to be a better idea when you’ve lived in your home for at least a year, property values have risen, and the housing market is favorable to buyers.
It’s also better when you plan on staying in your home for a while. If you plan to move in a couple of years, it may not be worth the cost as you won’t make the long-term savings from reduced interest.
Get in Touch Today
Ultimately, refinancing is all about making savings in the long-term. It’s only beneficial to refinance when your savings over time will offset the fees and costs you’ll pay right now.
That does mean you’ll have to do some pen and paper math—or you could reach out to an Associates Home Loan team member for help. Just reach out to us today and we’ll help you determine if refinancing is right for you.