Low Cost Refinance

Refinancing costs have three major components: the interest rate; points, which are an upfront charge expressed as a percent of the loan; and lender fees which are dollar charges for each of a number of lender services, such as processing, document preparation, inspection, and so on.

When comparing the costs of a refinance you have to take into consideration not only the interest rate and the total closing costs, but you need to also consider your future plans. You may receive 2 completely different quotes and options from the same lender, one with a higher rate and little to no closing costs and the second option may be with a lower rate but much higher closing costs. Your future plans should play a major role in deciding which option to choose. If you plan on moving within a couple of years there is a good chance that the low closing costs and higher rate option will work best for you. However, if you plan on staying and don't plan on doing anything with your mortgage again for at least a few years, then the lower rate and higher closing costs option will probably be best for you. Talk with your mortgage professional about your current and future plans and goals and this will help them to tailor a mortgage plan that is "right" for you.

Low cost refinance can be done by borrowers who perform their due diligence and work with someone they trust. The borrowers should question and ask for an explanation of all fees on the good faith estimate. Borrowers can negotiate to have these fees lowered if at all possible. They also should work with a competent broker that has experience in locating the low interest rates at a fair cost.

For the purpose of comparison, it is helpful to determine how long it will take to recoup your closing costs. For example, if your refinance will save you $200/month and the closing costs are $6,000, it will take you 30 months to recoup your closing costs through savings.

Homeowners in certain states may have higher settlement costs than others. Some states and counties impose mortgage tax which can add to the borrowers' closing costs by 1% to 2% of the loan amount. Title charges and recording fees also vary from one state to another. To find out what your settlement costs would be, consult a mortgage professional and have him prepare a Good Faith Estimate for your particular situation.

Low cost refinance quotes from many lenders are given with the knowledge that they are estimates, as the lender is not necessarily obligated to honor the rates and fees and they have minimal disclosure requirements. If it looks too good to be true, it often is.

» DISCLAIMER: The information contained in this article on 'Low Cost Refinance' is a collection of contributions by licensed mortgage professionals and is not the opinion of Broker Outpost LLC. Always consult a licensed professional before applying for a mortgage.