Refinance Closing Costs

 

Refinance Closing Costs

Acquisition costs. No closing costs. No out of pocket costs, no points. We hear a lot about this stuff, but when it comes to refinancing, do we really know what closing costs we pay? The truth is that mortgage companies know that you are fixated on closing costs. Since it’s nearly impossible to compare the final cost between competing lenders from apple to apple, unscrupulous marketers can often make you keep an eye out for the ball by promising unrealistic closing costs as they throw a fastball and a a few sliders right past you for a strikeout. So how can we avoid being hit by the grass? We have to evaluate the costs in the same way as they pay for themselves in the loan.

First of all, I would like to refute the term “No Closing Costs”, which is heavily promoted by national marketers and banks. Have you ever heard the phrase “There is no free lunch”? All things in this world have production costs, and if you know something about the companies that produce things, you will agree that they are doing their utmost to pay for it.

Here is a list of things that represent the lowest cost of refinancing a loan:

Title Search & Property Insurance: An Inescapable Fact of Life. These are the costs charged by a third party whose job it is to find out whose names are noted in relation to the property and to set up a 24- to 60-month title chain for judgments, liens, zoning issues, etc. uncover. This is the title search. Title works also include name research and “Plat Drawing”. Based on a variety of factors, including the risk they will take on the title search and the value of the property, they then enter into property insurance that covers the lender if they do not find someone or something on the property that establishes the property rights Loan uncollectible. As with taxes, there is no way to avoid this fee. However, you may be able to minimize them if you use the same company you used when you bought the house or during the last refinancing (see closing documents).

The title search costs on average US $ 300 at home, with some markets being lower and others much higher

Property insurance is variable as there are so many factors involved, including the value of the property, but the national average is around $ 700, although it is not uncommon for property insurance to cost up to $ 3000 or more, depending on the size and complexity of the property costs and the title chain.

Billing, the actual coordination of the loan, is often listed as a lawyer’s or trustee’s fee. This is necessary to ensure that all documentation is correct and anyone who needs a check at the conclusion, be it you, a service provider, your old lender or any number of creditors you may be paying. The average is $ 500 and varies by market.

Other title issues may or may not be required at the discretion of the lender or the title company to ensure the security of the property, including surveys, bankruptcy searches, etc. These fees may vary again, however, you may assume that your title bill represents the largest third party fees with a loan.

Government Fees: Another you can not handle is the government fees, which can be split into taxes and admission fees but may include more.

City / county / state tax stamps and immaterial or mortgage taxes vary so dramatically that I can not even deal with this issue here, but nothing up to 3% or more of the property value. This is NOT the same as the property tax.

Admission fees are the costs that your county recorder bureau charges for submitting your certificate. They are mandatory and range from $ 75 to $ 250.

Other fees of third parties:

Estimate: National average of $ 350, but may be much higher depending on plot size and location.
Credit: Average $ 30
Flood / pest / other controls: On average $ 100

Basic costs of the lender:

(Keep in mind that there are significant regional differences for these fees and larger houses charge higher fees.)

Tax Service: $ 75 average
Transfer: $ 35 average
Processing: $ 400 average

Lenders discount points:

These are the “points” of a loan that lowers the interest rate so you can qualify for the loan based on your income. One point equals 1% of the loan amount. One point for a loan of $ 200,000 equals $ 2,000. In general, you do not need to pay any points if your debt ratio or DTI, the measure of all your debt payments plus your monthly housing costs under the new loan, is below 40%. The DTI guidelines are much stricter today than they were three months ago, especially for borrowers who declare their income to qualify for refinancing.

Fees & Profit:

So far we have only dealt with the harsh cost of credit. Now we come to the fees for services where the lender or broker actually tries to make money, much like any other service provider such as an investment adviser, broker or solicitor:

Founding fees: Often calculated as a percentage of the loan
Broker / Lender Fees: Again often calculated as a percentage of the loan

It is important to remember that no one can take credit for nothing, no matter how good you are as a client, because every loan is a gain or a loss to the lender, and he has to accept this at one point or another sold. Your time and risk are just as valuable as your own or that of your lawyer or broker.

The closing costs vary not only depending on the location, but also depend heavily on what you qualify for. Therefore, your credit will affect the final numbers, especially in terms of discount points. The best way to calculate your own closing costs is to talk to a mortgage company who will give you an estimate of Good Faith, which includes all of the above fees.

Different ways we pay the closing costs

Do you think that now that you have seen everything clearly, everyone can offer refinancing without closing costs? These hard costs are always paid in two ways:
You will receive an invoice for each item and can pay in cash at the time of closing or include the costs in the new refinancing so that you do not lose money.
You will be charged a higher interest rate than you would normally qualify for the term of the loan, allowing the lender to earn a premium or profit that can then be offset against your closing costs. If the best rate you qualify for without discounts is 6.00% and the rate is slightly raised to 6.375% or 6.625%, you may receive a “discount” that the lender can apply to the closing costs.

Sometimes these methods are used in combination. My recommendation is to compare the payments. Let’s look at two completely hypothetical examples:

Example 1: Roll your costs into the loan balance

Refinancing loan amount of $ 400,000

Closing costs of 8,000 USD

——————————————

$ 408,000 funded

At 6,000% interest over 30 years

Has a monthly payment of $ 2446 for principal and interest

And a monthly payment of $ 2040 just for interest

A typical minimum payment option would be around $ 1,500

Example 2: Use a higher rate to finance closing costs

Refinancing loan amount of $ 400,000

Final cost of “$ 0” (assuming the hard cost of $ 8,000 is given as “zero”)

——————————————

$ 400,000 funded

At 6.625% interest over 30 years

Has a monthly payment of $ 2561 for principal and interest

And a monthly payment of $ 2208 just for interest

A typical minimum payment option would be around $ 1465

The reason I mentioned the above interest-only payment options is to show you how much more interest you pay each month if you opt for the zero-deductible option of a leading lender. instead of including these costs in the loan. The last option is to pay these expenses out of pocket, which is not a very popular option today but deserves a treatment.

Example 3: Pay your own closing costs

Refinancing loan amount of $ 400,000

Final costs of $ 8,000 are paid out of pocket

——————————————

$ 400,000 funded

At 6,000% interest over 30 years

Has a monthly payment of $ 2,400 for capital and interest

And a monthly payment of $ 2000 only for interest

A typical minimum payment option would be around $ 1465
Compared with including acquisition costs in your loan, the payout saves you $ 46 per month in principal and interest, or $ 40 in interest, which translates into savings of about $ 500 per year or less. If your $ 8,000 (approximately 6.25%) investment does not bring in more than $ 500 per year, there’s no good argument to pay the closing costs out of pocket. Online savings accounts and CDs already offer such rates, and the S & P 500 has returned about twice as much as these tariffs, so I personally would rather have access to my money and have it work for me. I am not going to agree that the additional mortgage interest of approximately $ 500 per year should be tax deductible (and please consult your CPA, we do not give tax advice).

Cost-benefit analysis

Finally, we can turn to the benefits of refinancing and weigh them against the costs. We will do this by taking a hypothetical situation before and after, including the closing costs.

Let’s say you want to lower your monthly payments, change your loan terms to get a fixed rate, and use the equity growth in your household to repay your personal loans and credit card bills and improve your home loans to increase your quality of life , They do not plan to retire in this house and sell it in 5 years, but like the idea of ​​a safe, fixed rate, just in case interest rates rise sharply over the next 5 years. In view of the economic development, you also want to keep the mortgage payment as low as possible. In this case, you have the opportunity to pay less for your mortgage.

You have a current mortgage balance of $ 350,000, for which you pay $ 2,250 a month, and your home is worth $ 600,000 today, compared to the $ 425,000 it was worth at the time of purchase.

You have $ 32,000 in debt for which you make a minimum monthly payment of $ 1,500, and you want to spend an additional $ 18,000 on the kitchen, which you believe will increase the value of your home by $ 30,000 would.

Your monthly total spend on mortgage + cards, etc. is $ 3,750

For example, your credit rating is 620, which is a very average value for a person with your credit card and other unsecured debts, and you prefer to state your income.

Hypothetically (for illustrative purposes only) you will receive a quote and an estimate of good faith that includes:

Quote 1: Conventional 30 years stuck

Refinancing loan amount of $ 400,000

Closing costs of 8,000 USD

——————————————

$ 408,000 funded

At 7.250% interest over 30 years

Has a monthly payment of $ 2783 for principal and interest

Savings of $ 967.00 per month

Quote 2: Interest fixed only 30 years

Refinancing loan amount of $ 400,000

Closing costs of 8,000 USD

——————————————

$ 408,000 funded

At 7,500% interest over 30 years

Has a monthly payment of $ 2550 only for interest

A savings of $ 1200 per month

It seems like child’s play, right? Interest rates are only much lower, but your basic housing cost has still risen $ 300, though you’ve paid off all the cards and saved nearly 1,200. At least, with the credit cards, you could have afforded it, even if, due to circumstances beyond your control, you would have suffered a loss of income, missed those payments, and wasted money to make your mortgage payment because the late credit cards would not cause you to lose your home , But with this refinancing that meets most of your goals, you now need to find a larger mortgage payment. So you get another offer for a mortgage that allows you to defer interest or a minimum payment if you want:

Quote 3: 30-year fixed rate mortgage with cash flow option

Refinancing loan amount of $ 400,000

Closing costs of 8,000 USD

——————————————

$ 408,000 funded

At 7,500% interest over 30 years

Has a monthly payment of $ 2550 only for interest

Has a minimum payment option of $ 1497

A savings of $ 1,200.00 per month only on interest

Ability to defer interest and reduce your current minimum payment by over $ 2,250.00

This is a fixed rate loan with the ability to defer interest, or a negative repayment loan that allows you to use your remaining equity as a home equity line whenever you want, without closing costs. If you want to make a lower payment to increase your monthly cash flow, you can do so by making the minimum payment that will be taken on your equity to cover the difference between the interest-only and the minimum payment. While the floating rate version of these loans is too risky to achieve your specific goals, a cash flow option with a really fixed interest rate could be the answer that will fulfill all of your refinancing reasons and provide you with security and flexibility, albeit a lower one Payment could be helpful.

Conclusion:

All loans cost money to procure and refinance, though it is not always clear how you pay them. As we have seen, most of the time, it is better to include your closing costs in your loan if you are not taking a fixed rate cash flow option mortgage with the intention of paying only the minimum payment so there is no shortage of pocket costs to you. Always remember to check whether the loan is meeting your goals, and do not put too much emphasis on the GFEs you get while shopping, because people, whether brokers or banks, are more than willing to lie to you Outperform Your Competition So you can include it in a process that you can not easily undo. I recommend talking to as many people as possible, but rating them on the basis of trust. You may find that the person who gives you the highest quotation is the only one who tells you the truth. This is not an easy topic, and although we have tried to be thorough on the topic, consulting a refinance specialist is the best way to get answers that are tailored to your situation.

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