How Much Does Refinancing Cost?

By: Robert C. Shea, R.C. Shea & Associates

The interest rates are still low and it appears everyone is rushing to refinance. How much does refinancing your home really cost? Unfortunately, most people do not realize the cost of refinancing. Now the long term savings of a lowered interest rate far exceed the nominal fees at refinancing, however, these costs are important to understand before arriving at the closing table.

Most of the details regarding the type of mortgage, the interest rate and the term of the loan are decisions for you and your mortgage broker to discuss. However, it is your attorney who will be reviewing the costs on the statement of settlement or what is referred to as a RESPA form. This form itemizes all the fees, charges and up front costs of the refinance.

First and foremost, the statement of settlement will list mortgage brokers' fees, such as application fees, delivery fees and appraisal fees. Also, it is necessary for the mortgage company to research the status of payment on your property taxes with your local municipality. This is necessary in order for the mortgage company to set up your tax escrows, which will allow you to pay for your taxes on a monthly basis as compared to a quarterly payment. In addition, this search will ensure the payments are current.

Next, there are fees to set up your escrow account. An escrow account is a fund or monetary cushion, which is held by the mortgage company from which your homeowner's insurance, private mortgage insurance, taxes or flood insurance are paid. These escrows are paid up front at closing. The escrows amount to several months of the insurance premiums and approximately one quarter of the taxes. The escrow can be accessed by the mortgage company to cover an unexpected increase without requiring an increase in your monthly mortgage payment.

In addition, the escrow is a security to you as the homeowner, should you miss a monthly mortgage payment. If there is a missed payment, the mortgage company will make a withdrawal from the escrow to make a payment for the insurance premium to avoid a cancellation of the insurance policy and also will withdraw funds to pay any due taxes to avoid a tax lien. Consequently, any escrows that are held by your original mortgage company will be returned to you several weeks after your refinance is complete.

Other charges that are listed in the statement of settlement are attorney's fees, which include the fees involved in drafting the documents and obtaining mortgage pay off information. Your title search fee is the cost that is associated with obtaining a report of clear title on the property which is being refinanced. You will also be required to pay fees to the county clerk to file your new mortgage and also to cancel your original mortgage. There may also be administrative fees associated with postage, faxes, wiring costs and overnight deliveries.

The final cost you will incur is the pay off to the original mortgage company. This pay off amount includes the remaining balance of the original mortgage, and a per diem interest rate and servicing fees. The pay off amount will always be higher than the balance indicated on your last payment coupon. The balance amount on your last bill does not include the interest that has accumulated from the date of the last statement to the actual date of the pay off of the original mortgage.

This is a list and explanation of some of the common costs of a refinance. Obviously, there are situations where the fee may include other items, like discount points and commitment fees to the mortgage company. Also, during the refinance, you may want to pay off high interest rate credit cards at the time of closing. It is important to ask your mortgage broker and your attorney about what fees you may be required to pay prior to arriving at the closing table.

Before getting into refinancing, one must evaluate the costs first. Ask yourself if its really worth it.

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