How Much Does It Cost to Refinance Your Mortgage?
What are mortgage refinance costs like?
Your mortgage is great, but sometimes you wish you had something a little bit different. Maybe you’d like one that’s a little shorter, or one that had a little bit less interest or perhaps it’s not even about the mortgage itself, you just want to cash out your home’s equity. Before you tell your current mortgage that it’s not it, it’s you, it’s smart to figure out how much it will cost to get into a different loan.
After all, the grass isn’t always greener on the other side of that fence, sometimes it just costs a bunch and then leaves you for a guy in a Ferrari.
The Cost of Saving Money with a Mortgage Refinance
It may feel a little counter-intuitive to pay someone to save you money, but that’s exactly what happens when you refinance your mortgage. Whether you use a streamline mortgage refinance, a traditional refinance or even use one of those “no cost” refinances that definitely costs something, there are a lot of people who have to work together to ensure that all the right papers get to the right places to fund the new note. Those people also all expect to get paid (jerks!), and those fees pile up.
Although fees can vary from state to state, the Federal Reserve Board suggests that paying three to six percent of the amount you’re borrowing is not out of line. You’ll pay more if you choose to buy your rate down further with points or are subject to a prepayment penalty for paying your current mortgage off before you originally agreed.
Is Refinancing My Mortgage Really Going to Help Me?
No, refinancing won’t help everyone, but that’s why there’s so much written on the topic. Everybody has a situation that’s a little bit different. It might help you a lot and your neighbor none at all. There are ways to figure out if it’s a good fit, but first thing’s first: why are you considering a refinance?
I just want to go on a Caribbean cruise.
Hey, it’s not our business, but you should probably think long and hard about that. If you’re still sure you want to tap your home for a vacation, look into home equity loans. They’re a much better fit for your needs and won’t cost nearly as much.
The 1960’s model bathroom in this house has got to go.
A home equity line of credit (HELOC) may serve your purposes better than refinancing the whole house. This is a type of home equity loan that takes a back seat to your primary mortgage and acts as a credit line. You can take your debit card to the neighborhood home improvement store and buy what you need each weekend as your remodel progresses. You don’t have to use it all at once. It’s also a lot less expensive upfront and less involved than a refinance.
I heard that rates are going up and I want to make sure I get the best possible deal now.
Ah, now you’re talking refinancing language! If you want to change your rate, that’s refinancing territory. Before you decide on a refinance, though, get some Good Faith Estimates from the bank you’re refinancing through. They can give you an idea of what the overall financial picture will look like after the new loan is in place. Home loans aren’t something you can compare directly, unfortunately. There are a lot of factors at play.
My mortgage has an adjustable rate/balloon payment/other awful thing and I want to get rid of that.
A change in terms is an excellent reason to refinance and no one would fault you for wanting to refinance into a fully amortizing, fixed rate note. In this case, get a few different Good Faith Estimates from different banks or on different products, depending on what kind of lender you’re working with (some can offer more loan types than others) and pick the one that makes the most sense for your life. Regardless of your choice, it’s likely you’re going to save a bundle.
How Do “No Cost” Mortgage Refinances Work?
Just like there are no free lunches, there are no free mortgage refinances. All those people from way up near the beginning of this page still want to get paid. What happens in a “no cost” refinance is that you still pay the fees, they’re just not paid out of pocket. Either you pay them in the form of additional interest over the life of your loan, or you pay them when the lender wraps them into your new principal, so you also get to pay interest on them for the rest of your loan.
Either way, there’s nothing free about it.
But that’s not to say they’re not useful products, because sometimes they’re the best option. Just like sometimes having pizza with your coworkers is the best option, even though you know it’s going to give you indigestion, because your work provided it and you didn’t have to pay for it.
No matter what your reason for refinancing or the type of loan you want to refinance into, we’ve got you covered. Drop in anytime at Home.Loans, we’re here and ready to help! After all, we’re still waiting on the pizza delivery person -- if they’re not here in five minutes, we were told to wait a little longer.