The 2023 U.S. News Survey revealed that over 80% of recent homebuyers were assured by their mortgage loan officer or real estate agent that they could “buy now and refinance later.” Some homeowners—especially those with an adjustable-rate mortgage (ARM)—even said they wouldn’t be able to keep making payments if they couldn’t refinance.
If you’re facing the same situation, this blog post is for you! Our mortgage experts at The Mortgage Minds Group discuss the costs of refinancing and the top seven ways to reduce them.
What Does Refinancing a Mortgage Do?
Refinancing a mortgage involves swapping your existing home loan for a new one, usually with more favorable terms. This can lead to a lower interest rate, smaller monthly payments, or even help you pay off the loan more quickly.
Some people also refinance to switch from an adjustable-rate mortgage (ARM) to a fixed-rate one, which gives them more stability. Others take cash from their home’s equity to cover large expenses like home improvements or debt consolidation. Refinancing is wise if you want to save money over time or make your mortgage work better for you.
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What Is the Cost of Refinancing a Mortgage?
According to Freddie Mac, refinancing closing costs are approximately $5,000. However, the amount you'll pay varies based on the size of your loan and where you live, as state and county fees play a significant role.
The closing costs generally range from 2% to 5% of your total loan amount. For example, if you’re refinancing a $300,000 mortgage, you’ll spend anywhere from $6,000 to $15,000 in closing costs.
Here’s a quick breakdown of the typical fees involved in refinancing a mortgage:
Application Fee: $200 to $500
Loan Origination Fee: Up to 1.5% of the loan amount
Home Appraisal Fee: $200 to $600
Credit Report Fee: $20 to $50 per applicant
Title Search and Insurance Fee: 0.5% to 1% of the loan amount
Underwriting Fee: $300 to $900
Recording Fee: $100 to $250
Attorney Fee (if required): $500 to $1,500
7 Ways to Save on Refinancing Fees
Refinancing a mortgage involves several fees that might surprise you if you're not prepared. However, knowing about these fees and making informed decisions can help you save a significant amount of money.
Let’s discuss the seven expert tips for cutting costs when refinancing your mortgage:
1. Improve Your Credit Score.
A higher credit score means you’re seen as less risky by lenders, which often results in more favorable rates for you. Even a small reduction in your interest rate can lead to significantly lower monthly payments and less total interest over the life of the loan. Additionally, a better credit score can help you avoid extra costs, such as higher origination fees or private mortgage insurance.
It’s more challenging to refinance a mortgage with bad credit. However, options like FHA streamline refinancing or working with a co-signer could still help you refinance. It’s also smart to improve your credit before refinancing, if possible, as that will open up better deals and lower costs.
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2. Shop Around.
Not all lenders charge the same fees, so comparing offers from multiple lenders is well worth the effort. Check with banks, credit unions, and online lenders to see what rates they’re offering.
Look closely at the interest rates, closing costs, and any hidden fees. Ask for a loan estimate from each lender with a clear breakdown of costs. By taking the time to shop around, you can choose the lender that offers the best overall deal for your situation.
3. Negotiate Fees.
Some fees may be negotiable. Here are some tips for negotiating refinancing fees:
Review the Loan Estimate: Review the lender's fee breakdown and identify any unusually high fees.
Ask for Fee Reductions or Waivers: Request that the lender lower or waive specific fees, like the application or origination fee.
Leverage Competing Offers: If you have a better offer from another lender, ask your current lender if they can match or beat it.
Use Your Loyalty or Credit as Leverage: If you’ve been a long-time customer or have a solid credit score, mention this to strengthen your negotiation position.
Negotiate with Third-Party Providers: Contact third-party service providers, such as appraisers or title companies, to see if they’ll lower their fees.
4. Choose Your Original Title Issuer.
Choosing your original title issuer when refinancing can save you money because they might offer a discounted reissue rate. Since they’ve already researched your property’s title during your original mortgage, they often give a reduced rate for refinancing.
This can cut down one of the more sizeable fees in the refinancing process and help you keep more money in your pocket. It’s a simple way to save; all you need to do is ask if they offer this discount.
5. Buy Mortgage Discount Points.
Mortgage discount points are an upfront fee you can pay to lower your interest rate when refinancing. Each point usually costs about 1% of your loan amount and reduces your interest rate by around 0.25%.
By paying for points upfront, you’ll have a lower monthly payment that saves you money in the long run. This works well if you plan to stay in your home for many years since the long-term savings on interest can outweigh the initial cost of the points.
6. Consider a No-Closing-Cost Refinance.
A no-closing-cost refinance can help you avoid paying upfront fees, which is easier on your budget if you’re tight on funds. However, if the closing costs are rolled into your loan, it comes with a higher interest rate and an increased loan balance. It’s a good option if you need to save money now, but weighing the long-term costs before deciding is important.
7. Get Help from a Mortgage Expert.
Working with a mortgage expert from The Mortgage Minds Group can help you save money when refinancing because we know the ins and outs of the process and can guide you to the best deals. We’ll help you find lenders with the lowest rates and fees, point out where you might be able to negotiate, and even spot hidden costs that you might miss. Plus, we offer personalized advice to fit your financial situation, making sure you get the best value out of your refinance.
Having a mortgage pro in your corner can make a big difference in the long run! Contact us today to schedule a free one-on-one consultation.
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