When it comes to refinancing, it may prove a bit pricey especially if you encounter lenders with high closing costs or interest rates to compensate for your fees. Before you take any action, consider your refinance closing costs and how they would affect your financial plan. You’ll have a better idea of why refinancing may or may not be the best option.
What are refinance closing costs?
Each lender is different when it comes to refinance closing costs especially if you’re looking for a specific number. However, these fees are normally associated with closing costs: credit fees, appraisal fees, points, insurance, escrow and title fees, and lender fees.
Normally, you’ve paid for escrow and title fees around the time of your property purchase. However, a refinance calls for a new policy. You can even receive certain discounts in your financing process.
Note that your lender can charge a flat rate for things such as: processing, underwriting, document preparation, and administrative fees. These bills can run hundreds of dollars. If you plan to use your property as an investment, you need to make sure it’s completely livable. You need an appraisal to ensure it meets the safety and health requirements. This is costly especially if you need repairs. Also, you may live in an area subject to floods or earthquakes. There are costs associated with these natural disasters like flooding insurance to help in creating more financial security in case of damage. You should also be aware of pest inspections, courier services, and tax fees. These all have different prices and you should consider them in your total budget.
How to keep refinance closing costs low
One thing to keep in mind: never put your eggs in one basket. Always find out what each lender offers in their refinancing. Some offer lower costs or omit certain costs. Take into account how this affects your rates in the long or short term. Seeing as lenders have to provide you with a ballpark estimate of costs, this makes it a bit easier to make good choices. This also ties into why negotiation is the key. Some fees that are negotiable for a reduced rate include documentation and paperwork. Always be on the look out for promotions. You never know if acting on something quickly can lead to saving thousands of dollars. Also, you may need to hire your own attorney. A lender can find you an attorney, but you may get more out of finding your own. Also, you can pay a bit less rather than hiring someone outside of your circle.
Measure your refinance costs over a 15 and 30 year period
Although, a 30 year mortgage seems appealing because of lower costs per month, you may actually find wiping out your mortgage in 15 years will work best. Why? You won’t incur crazy interest that can nearly double your principal balance. Also, you may want to go for a fixed rate as well. The market can lower or increase your rates. A lot of the time this can negatively affect your rates. If you plan on selling your home, short term adjustable rates may be the way to go before you make your next move. It doesn’t make sense to have an adjustable rate plan for more than 5 years because rates are bound to skyrocket. Make sure you have good funds and to back up any refinance closing costs you have leftover.
Talk to your lender about your closing costs (FHA financing)
It’s very important to discuss rates with different lenders. See what each has to offer to better your financial situation. Also, it’s wise to talk about closing costs. Some lenders tend to have lower closing costs in their plan. This may affect your plan especially if you opt to go for a federal streamline refinance or federal cash out refinance. Find out which solution is best for your long or short term goal in this refinancing situation. It’ll make the process much easier as you negotiate with your lenders on set terms.
Closing costs may provide high fees from the front or back end, but they are necessary to provide protection, show ownership, and more. If you are really pushing to not pay closing costs, see what lenders will pay those for you. Also, see how your interest may rise as a result. Also, find out if you may omit certain fees depending on your way to refinance. It’s necessary to see how each lender includes or withholds certain closing costs.