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American Homeowners Association



Scrutinize Refinance Fees

Refinancing is still a popular option despite recent mortgage rate increases. If you're looking to refinance, it's going to be a mixture of good news and bad news. Say goodbye to your old mortgage and interest rate but say hello to settlement and loan processing fees. That's right, just because it's a refinance and not a home purchase loan, doesn't mean you're off the hook. The same or similar types of fees apply. And those fees can make the deal much less attractive, so be sure to research closing and loan processing costs carefully before signing the dotted line.

How much can you expect to pay?
On a traditional refinance, count on paying approximately 2 to 5 percent times your loan principal in refinancing costs. For example, let's say you've got $80,000 in principal left to pay on your original $100,000 mortgage. Multiply the outstanding $80,000 in principal by 2 to 5 percent, and your refinancing costs will probably run somewhere between $1,600 and $4,000.

Of course, 2 to 5 percent is a very broad range. Fees do vary considerably between lenders, so be sure to shop around. Just remember to compare the interest rate, too. Although you'll save on refinance fees with a no-cost or low-cost loan, the tradeoff is a higher interest rate. Another option is to fold the fees into the amount of the loan and make a slightly higher monthly payment, rather than pay the fees up-front.

Discount Points.
Higher discount points are the tradeoff for a lower interest rate. This pre-paid finance charge is what you'll pay at closing to get a lower rate. One point is 1 percent of the loan amount. Pick and choose among different combinations of interest rates and discount points, and select the best deal for your circumstances.

Loan Origination Fee.
Calculated like the Discount Fee at one percent of the loan amount, this fee covers the costs associated with processing your mortgage application and completing the loan.

Title Search and Title Insurance Fees.
These are safeguards to ensure you own the property free of any outstanding liens or claims. Even though a title search is supposed to reveal existing claims, the lender will require you to pay for title insurance to guard against any errors. You can save, however, by asking your current title insurance company to re-issue the present policy. That saves up to 70 percent compared to a new policy.

Appraisal Fee.
This pays a professional real estate appraiser to determine the actual market value of your home. Although required by the lender in evaluating your application, an appraisal is nonetheless critical because it will reveal how much home equity, or ownership interest, you have accumulated through paying off your loan or from changes in the real estate market.

Closing Agent or Attorney Fees.
The lender will pass on fees paid for the services of the closing agent or attorney.

Private Mortgage Insurance (PMI).
Lenders who deal with Fannie Mae or Freddie Mac will charge you for PMI whenever you finance 80 percent or more of your home's value.

Credit Report.
All lenders require a credit check to determine your credit history.

Prepayment Penalties.
Some mortgages carry penalties for paying off the loan ahead of time.

Remember to scrutinize closing costs carefully and question your lender about fees that seem too high. Consider the Good Faith Estimate of Settlement Costs your guide, as a consumer, to the service charges you'll be asked to pay. The lender or mortgage broker is required by law to provide it after you apply for the loan. Take your time going over the numbers. Don't let the lender pad the closing costs with excessive charges for "document preparation" or "application fees."

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