The fees described below are the charges that you are most likely to encounter when refinancing.
Application Fee. This charge imposed by your lender covers the initial costs of processing your loan refinance request and checking your credit report.
Title Search and Title Insurance. This charge will cover the cost of examining the public record to confirm ownership of the real estate. It also covers the cost of a policy, usually issued by a title insurance company, that insures the policy holder in a specific amount for any loss caused by discrepancies in the title to the property. Be sure to ask the company carrying the present policy if it can re-issue your policy at a re-issue rate. You could save around 30 percent of what it would cost you for a new policy. Make sure you search for your title insurance by comparing companies. Never allow a lender to dictate to you which title company you will use. There are many fees that can be saved by making your own choices and comparing fees between title insurance companies.
Lender's Attorney's Review Fees. The lender will usually charge you for fees paid to the lawyer or company that conducts the closing for the lender. Settlements are conducted by lending institutions, title insurance companies, escrow companies, real estate brokers, and attorneys for the buyer and seller. In most situations, the person conducting the settlement is providing a service to the lender. You may also be required to pay for other legal services relating to your loan which are provided to the lender. You may want to retain your own attorney to represent you at all stages of the transaction including settlement.
Loan Origination Fees and Points. The origination fee is charged for the lenders work in evaluating and preparing your mortgage refinance loan. Points are prepaid finance charges imposed by the lender at closing to increase the lender's yield beyond the stated interest rate on the mortgage note. One point equals one percent of the loan amount. For example, one point on a $75,000 loan would be $750. In some cases, the points you pay can be financed by adding them to the loan amount. The total number of points a lender charges will depend on market conditions and the interest rate to be charged.
Appraisal Fee. This fee pays for an appraisal which is a supportable and defensible estimate or opinion of the value of the property.
Prepayment Penalty. A prepayment penalty on your present mortgage could be the greatest deterrent to refinance. The practice of charging money for an early pay-off of the existing mortgage loan varies by state, type of lender, and type of home loan. Prepayment penalties are forbidden on various loans including loans from federally chartered credit unions, FHA and VA loans, and some other home-purchase loans. The mortgage documents for your existing home loan will state if there is a penalty for prepayment. In some loans, you may be charged interest for the full month in which you prepay your loan.
Miscellaneous. Depending on the type of home loan you have and other factors, another major expense you might face when you refinance is the fee for a VA loan guarantee, FHA mortgage insurance, or private mortgage insurance. There are a few other closing costs in addition to these.
In conclusion, a homeowner should plan on paying an average of 3 to 6 percent of the outstanding principal in refinancing costs, plus any prepayment penalties and the costs of paying off any second mortgages that may exist.
One way of saving on some of these costs is to check first with the lender who holds your current mortgage. The lender may be willing to waive some of them, especially if the work relating to the mortgage closing is still current. This could include the fees for the title search, surveys, inspections, and so on.