This ARTICLE On Mortgage Refinance Closing Costs When Refinancing Home Loans Was PUBLISHED On October 9th, 2019
Mortgage Refinance Closing Costs And How It Is Paid:
- Refinancing is almost at a historical high
- More and more homeowners are refinancing their mortgages due to record low mortgage rates
- Last year in 2018, mortgage rates were at an all time high since the 2008 Great Recession
- However, rates started plummeting starting the beginning of 2019
- The Feds have cut rates for the first time in 11 years
- The Federal Reserve Board cut rates twice in 2019 and may continue to do so
- Mortgage Rates are at a three-year low
- Mortgage rates today is over 1.0% lower than it was one year ago
- Some homeowners have refinanced multiple times in the past few years
- However, there are Closing Costs every time a borrower refinances
In this article, we will cover and discuss Mortgage Refinance Closing Costs.
What Does It Mean To Refinance
Refinancing is when a homeowner with a mortgage pays off the outstanding balance with a new mortgage due to one reason and/or another.
- The existing mortgage is paid off with a new mortgage
- The homeowner is responsible for the new principal and interest with the new mortgage
- Refinance Closing Costs depends on many factors
- It will cost borrowers money every time they refinance
We will cover the various reasons why homeowners refinance and the net tangible benefits. The majority of homeowners refinance to save long-term interest costs and to lower their monthly payments. By refinancing a high-mortgage rate loan to a lower rate mortgage, it can save tens of thousands of dollars in interest expense.
No-Cost Mortgage Refinance
Is there such a thing as a no-cost refinance mortgage?
- The blunt answer is no
- There is nothing for free in the mortgage world
- Many lenders advertise no-cost refinance mortgages
- What this means is the borrower does not have to pay any upfront mortgage to refinance closing costs
Borrowers can pay discount points and upfront closing costs and get lower rates on refinance transactions.
Reasons Why Homeowners Refinance
There are many reasons why homeowners refinance.
- The most common reason to refinance is to save money by paying off the existing high-interest rate mortgage with a new lower-rate loan when rates are low
- Other reasons are when you need to take out a co-borrower
- Non-occupant co-borrowers can be taken off the existing loan by paying it off with a new loan via refinancing
- Cases, when joint borrowers go through a divorce, is another common reason why homeowners refinance
- Many homeowners with FHA Loans refinance to Conventional Mortgages to eliminate the FHA MIP
- Homeowners with non-QM Loans or other mortgages with high rates often refinance to conventional loans when they meet Conforming Guidelines
Homeowners with equity in their homes can refinance and get a cash-out refinance mortgage.
Pre-Payment Penalty On Existing Mortgages
Pre-payment penalties used to be very common prior to the 2008 Housing Collapse.
- However, it is illegal to have pre-payment penalties on owner-occupant mortgages
- It is legal to have pre-payment penalties on investment property loans
- Most investment real estate loans have pre-payment penalties the first three years
- Common penalties is borrowers will get charged 3% the first year they pay off their investment home loans
- 2% if they pay it off in the second year. 1% if they pay off the loan in the third year
After the fourth year, the pre-payment penalties are usually waived.
Typical Mortgage Closing Costs
Every lender has a different mortgage refinance closing costs. The following are typical refinance mortgage closing costs:
- Application and/or origination fees
- Credit report fee
- Discount points
- Pre-paid which are escrows held by the lender of homeowners insurance and property taxes
- Appraisal fee
- One year homeowners insurance
- Inspection fees
- Processing fee
- Underwriting fee
- Title charges
- Recording fees
- Transfer stamps
- Inspection fees
- Other third-party fees and/or costs
Closing costs vary from city to city, county to county, and state to state. Closing costs are more expensive in some areas than others. Lenders can exempt certain costs and can eat it for rate shoppers. Refinance closing costs can either be paid upfront and/or through a lender credit. To get a lender credit, the mortgage rates will be higher.