We’ve been focused on mortgage refinancing for the last week because it can potentially save homeowners a great deal of money over the life of a loan by modifying current interest rates. However, today we wanted to make you aware of the fees associated with a refinance.
Include loan processing, document preparation, and closing costs. These will be extremely similar to what you paid in your original loan transaction, and account for the clerical work the lender and their staff need to complete. Origination fees can be a source of confusion for many borrowers, but a good lender will disclose their fees up front. While these fees vary from lender to lender, do not shop around for a loan with origination fees in mind. Sometimes cheaper is not better. Remember – you get what you pay for.
When you pursue a refinance you will still need to deal with appraisals, title searches, government fees and home inspections. These will be recorded with the origination fees in a GFE, or good faith estimate, provided by your lender. A great way to show your savvy is by inquiring about the GFE. And if your lender gives you a blank stare or tries to talk circles around you, you can do your best to run in the opposite direction.
Other costs come from special circumstances, such as the current refinance not being your first, or even second time. When borrowers pursue multiple mortgage refinances, they often roll the origination fees into the principal loan balance so they can pay off the fees with each mortgage payment. However, this can lead to closing costs piling up and never get paid down.
All in all, we encourage you to be smart about pursuing a mortgage refinance. Do not refinance multiple times, just to chase falling interest rates, and don’t expect the transition to put cash in your pocket immediately. The saving process spans a number of years, and you will initially face having to cover lender, third party, government, and other fees.