Refinance Calculator: Ten Costs to Include

By Dean Schermerhorn
Calculators for Mortgages Columnist

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If your finances resemble that of many people in the United States, you might have built up substantial credit card debt. To reduce your payments, consider a debt consolidation loan and pay off credit cards and other unsecured loans. The interest rate (and your monthly outgo) should be considerably less.

Refinancing Your Home One Way to Consolidate Debts

Some experts advise that you take out a home equity loan. You can find attractive rates, and the interest is often tax deductible. As an alternative, you could arrange cash-out refinancing.

Cash-out refinancing taking a larger loan than necessary to refinance your mortgage, and using those extra funds to retire high-interest consumer debt. Experts urge caution when doing this; if you simply run up your credit cards again you are worse off than before. Also, keep in mind that by stretching out your credit card debt over 15 to 30 years, you could end up paying more interest in the long run. The costs of refinancing your mortgage can be high; make sure that you will be saving enough each month to recoup those costs in a reasonable amount of time. A refinance calculator can help you make that determination.

Home equity loans come with higher interest rates than first mortgages, but often cost little or nothing to set up. If you have a good rate on your current mortgage, keeping your existing loan and adding a home equity loan makes sense.

Find a Good Refinance Calculator

So, you ask yourself, "Should I refinance and pay off my unsecured debt?" Just to make sure that you account for all of the refinancing costs with your mortgage loan calculator, refer to your lender's Good Faith Estimate (GFE). This required disclosure lists the costs of refinancing and may include the following charges:

1. Application fee: An upfront fee that cannot be charged until you have decided to apply for a mortgage with that lender.
2. Loan origination fee: Typically one percent of the loan amount. This charge is often negotiable.
3. Discount points: Each is one percent of the loan amount and may be used to buy a lower mortgage rate. A mortgage calculator can show how points affect your annual percentage rate (APR) and monthly payment.
4. Appraisal fee: paid for your property appraisal. Can range from less than $100 for a "desk appraisal" to thousands for very high-end property.
5. Inspection fee: For inspections and tests, for example well certifications and septic inspections.
6. Title and escrow charges: Charged by attorneys or title companies to close the transaction and insure that you have clear ownership of the property. These fees can be substantial.
7. Recording fees: Charged by your county to record the new lien against your property.
8. Mortgage insurance: Either private insurance or mortgage insurance premiums or funding fees for government loans like FHA, VA, and USDA rural housing loans. This insurance protects the lender if you default.

You may also find homeowners' insurance and property tax payments listed; however, these are not refinancing costs but are just costs that you would pay whether or not you refinanced. When shopping for a mortgage, get GFEs from several lenders (the same day if you can) and compare their costs and interest rates. Plug these into a mortgage calculator and choose the deal that makes the most sense for you.

About the Author
Dean Schermerhorn, MA, owner of Concise Communications, lives in Reno, Nevada. He has written for banking, health-care and manufacturing businesses and articles on finance and business topics.

Date :2009-10-13