by Brentt Taylor
Some fees involved in refinancing a mortgage include percentage rate reductions and broker profit points. Financial advisors recommend negotiating certain charges to achieve lower monthly payments. It is extremely helpful to understand the concept of refinancing before discussing applicable charges.
Brief Refinancing Overview
According to the Federal Reserve Board, the act of refinancing a mortgage pays off existing loans and creates another one under new terms. Combining first and second mortgages creates lower monthly payments for some homeowners. Customers refinance with current lenders or change to other companies offering better percentage rates. Individuals hoping to refinance must meet the following criteria:
- Applicant credit scores must be at least 620. Most companies will not work with individuals who possess poor or mediocre credit.
- Home equity must be approximately 20 percent or more. Total refinanced amounts cannot be over 80 percent of the current appraisal value.
- Applicants must have a record of on-time payments for periods that vary depending on the lender.
Why People Refinance
Homeowners refinance for a vast number of reasons. Many welcome the opportunity to ease financial burdens, while others move from Adjustable (ARM) to Fixed Rate mortgages. When the assessed value of a property is more than outstanding mortgage amounts, homeowners use cash payouts through cash-out refinancing to pay for educational and recreational pursuits or residential upgrades.
Applying for mortgage refinancing is gruelling as the initial mortgage process. Homeowners release employment and financial information after shopping around for the best rates. Fees added to base loans create new monthly payment amounts but careful negotiation results in adjustments or omissions in some cases. The Federal Reserve Board and consumer guides indicate that refinancing homeowners frequently encounter the following fees. Prices are current as of November 2012.
1. Application fees of $75 to $300 United States dollars (USD) are non-negotiable and non-refundable.
2. Appraisal costs add between $300 and $700 USD to the application process. Homeowners may be able to sidestep the charge by producing recently completed independent appraisal forms.
3. Document-recording charges range from $350 to $700 USD or more but customers can request the reissue of various forms.
4. Points either average one percent of the mortgage loan and lower percentage rates or make money for lenders. Lenders are happy to adjust this easily negotiated charge.
5. Inspection fees of $175 to $300 USD encompass pest checks and water tests. Each locale has specific inspection requirements.
6. Special interest refinancing programs available to service members or individuals in rural locales include additional fees ranging from 1.5 to 1.75 percent of total loan amounts.
7. High-risk refinancing that covers more than 80 percent of assessed property values requires private mortgage insurance (PMI). PMI fees range from .5 to 1.5 percent of total loan amounts.
8. Homeowners insurance provides coverage in the event of natural disaster or human misdeeds. Policies ranging in price from $300 to $1000 USD protect lender investments.
9. Property taxes must be current to approve refinancing. Homeowners may need to place varying annual or semi-annual amounts in escrow accounts.
10. Credit report fees average between $25 and $65 USD per couple or individual. Applicants can request lowering the charge considering many lenders receive discounted credit report processing rates.
Financial experts recommended closely examining all charges on refinancing documents. Homeowners should not hesitate to point out duplicate or unreasonable amounts. Consumers have the right to delay contract signings until they feel comfortable with document terms and conditions.
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