Your Guide to Lower Mortgage Refinance Costs
Do mortgage closing costs get confusing? Afraid you are paying too much?
Follow these five simple tips to lower mortgage refinance closing costs on your next loan:
1. Dive into those closing costs with your mortgage loan officer line-by-line
When you submit an application to refinance to your mortgage lender, you will see an interest rate and a Good Faith Estimate of Closing Costs as required by the federal government (the “GFE”). Most mortgage borrowers only look at the last line and do not go through each item with their loan officer. Many times just by asking questions about closing costs and closing fees your loan officer can help you obtain discounts or save you on specific fees. For example, if you are applying for a streamline refinance loan you may not need an appraisal.
2. Choose Your Mortgage Rate and Point Combination With Care
Points are the largest individual item you may pay on a refinance. One point is equal to 1% of your mortgage amount (e.g. one point fee on $200,000 loan is $2,000) and can be called an origination fee, discount point or several other names. Paying one or more points will lower your mortgage interest rate, but it usually takes six to seven years to recover the upfront cost of points in monthly savings on your mortgage payment. So if you are looking to move or refinance again within the next seven years, a zero point mortgage is probably your better option.
3. Request Closing Cost Discounts
Just asking for discounts from your mortgage loan officer may result in a closing cost credit of at least a few hundred dollars. Most mortgage lenders have closing cost discounts to help make the sale. As a rule of thumb, the larger the loan, the larger the discounts available.
4. Don’t Forget Your Title Insurance Discount on Mortgage Refinances
When you refinance, mortgage borrowers can use the same title insurance company as they did when they purchased their home and as long as you purchased your home less than ten years ago you will be able to save up to 40% on your title insurance policy renewal. Many lenders and closing attorneys forget to help you get this discount.
5. Get Every Refinance Closing Cost in Writing
Every refinancing homeowner will receive a Good Faith Estimate before the application processing begins. Mortgage borrowers are given three days to review the estimate before application or appraisal fees can be collected or expended. In addition, if for any reason there is a change in your refinance closing costs after application but before closing, new federal regulations require that borrowers are given extra time to review changes. If there is any change during the application process in your mortgage closing costs, challenge the changes and if necessary to get your mortgage lender’s attention tell them that you refuse to accept the changes or you will not close your refinance loan with them.
When you are looking at mortgage refinance closing costs in detail, remember to separate actual charges from adjustments. Charges are for fees that you pay and will never get back, like appraisal fees and title fees. Adjustments are for property taxes, homeowners insurance and interest payments that are payments made on your behalf. Escrows for property taxes and insurance are held your lender and is your money that you will eventually get back when you sell your home or refinance again.
Do not overlook your largest expense when refinancing: your title insurance.
Title insurance protects you and the lender in case the title search missed a claim on the property. You purchased title insurance when you purchased your home, so why do you have to buy it again? The answer is that you need to purchase additional protection to cover the time from when you purchased until your refinance.
With that said, many people refinance only months after they purchase or refinance many times over a several year period.
The title insurance companies recognize this gets to be unfair so when you refinance if you use the same title insurance company as when you purchased they offer a 40% discount off the cost of the original policy.
For example, if you refinance a $200,000 loan,a full price title policy would cost about $724. But if you refinance and get your 40% discount, then you will only spend $434. That will save you $290 at closing.
Since most people finance their closing costs, you actually save close to $500.
To get this title discount, ask you loan officer up front to make sure the closing agent uses the same title insurance company and that you want the discount. If you wait until closing on you mortgage refinance it may be too late.