Refinance Calculator--What Fees Have to Be Paid?

During the mortgage refinance process, homeowners encounter fees and closing costs with every lender. Although the fees may vary, borrowers should pay close attention because these fees can affect your mortgage rate, loan alternatives, and overall effectiveness of refinancing. These fees can also help compare lenders.

Appraisal Fee

Mortgage lenders require a detailed appraisal for most refinances as it gives them information on the type of property, the value of the property, and the intended occupation (single family, condominium, rental, investment, etc...) It's common for homeowners to pay this fee directly to an approved appraiser at the beginning of the refinance transaction. Most recently, mortgage lenders will be paying special attention to the value of your property to help determine your mortgage's new loan to value ratio. This ratio is important in determining your mortgage rates and qualification standards. Many online mortgage calculators will request the value of your home to provide an accurate mortgage quote; it's best to use the exact value provided by your appraiser. Appraisals can cost anything from less than $100 for a "desk" appraisal to thousands for unusual or expensive properties.

Lender Fees

Oftentimes, loan origination or broker fees may be calculated as points (each point being one percent of the loan value). Or there may be what are referred to in the industry as "garbage fees," like administration fees, document drawing charges, underwriting fees, even courier fees. These are often negotiable.

Discount Points and Buy Downs

This fee directly affects the mortgage rate issued on the new loan during a refinance transaction. A discount point, or buy down, is a fee paid by the borrower to the bank which reduces the interest rate on the new home loan. By paying an upfront fee initially, homeowners benefit with a reduced rate on their new mortgage. The rate reduction can be set for the life of the loan, or it may be temporary for a set number of years. Refinance calculators can help determine if it's worth it to pay discount points on your new mortgage.

Yield Spread Premium

On the other hand, a yield spread premium is quite the opposite. For example, if the market rate is 5%, but the borrower chooses a mortgage at 5.25%, a yield spread premium is issued by the bank to the broker. The broker can use this rebate to cover loan costs so that the borrower doesn't have to pay the loan fees himself. Most refinancing borrowers choose to pay slightly higher interest in exchange for low or no out-of-pocket fees. In addition, if you don't know how long you plan to keep the loan, why not let someone else pay the fees? If you know this is a permanent mortgage though, it almost always makes sense to pay more and get a lower rate.

Prepayment Penalty Fees

Borrowers may opt for loans with prepayment penalties to get a better rate or more favorable terms. But the penalties can be stiff--from 6 months' interest to several percentage points of the loan amount. If your Truth-in-Lending disclosure say you MAY have to pay a prepayment penalty, there IS in fact a prepayment penalty on the loan. However, even loans with prepayment penalties allow you to prepay up to 20% of the principal each year without penalty. Others allow you to prepay the loan if you sell the house but not refinance. This is called a "soft" prepayment penalty.

Title and Escrow Fees

These fees cover both the mortgage lender and owner policy of title insurance and escrow fee. Title insurance protects the owner and mortgage lender by insuring clear title, and also against specific instances of fraud or forgery. These fees will vary based on the loan amount, state location, and between different companies. Although most homeowners already have title insurance from their initial purchase, a new policy is required during a refinance because of the new mortgage. Escrow fees cover a title company's service of assuming the role of an independent third party during the refinance process. The total fees here will also cover various recording fees with the county recorder and notary fees during closing time. During this time, title companies will also check to see if the borrower has a current homeowner's insurance policy. Fortunately, most borrowers can avoid an additional fee if they can provide proof that they are current on their coverage--otherwise, individuals should add this fee to their cost of refinancing. These fees are often negotiable and the BORROWER has the right to choose the title company in most states--you can shop and don't have to use the lender's buddy if you don't want to.


Posted By :
Heindrick So is a mortgage consultant at a local Bay Area Real Estate Brokerage--specializing in residential wholesale lending. Heindrick frequently contributes to various finance columns, ranging from home loans and mortgages, debt management, and other personal finance topics.

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