- Refinancing a mortgage involves paying off the original loan with the refinanced loan. Some mortgages have prepayment penalties to discourage you from paying them off early. Although some states outlaw this penalty, others do not. On average, it costs between one to six months in interest, according to the Federal Reserve Board.
- The lender typically charges fees to initially process the loan and later evaluate and prepare it. The application fee, which involves checking credit and viewing the loan application, costs between $75 and $300 in 2008, according to the Federal Reserve Board. When the lender prepares your mortgage, they charge the loan origination fee, which varies depending on the loan amount. Generally, the origination fee costs, at most, 1.5 percent of the principal.
- Points paid for refinancing either give the broker a profit or reduce the loan’s interest rate, states the Federal Reserve Board. Try to negotiate down the rate, especially when paying points to earn brokers money. The cost of points vary in range from 0 percent to 3 percent of the principal amounts.
- Refinancing a home requires third-party services such as appraisals and attorneys. The appraisal ensures the home holds at least the amount of value as the refinanced loan amount. In 2009, this fee ranged from $150 to $450. Attorneys review closing documents for the lenders and cost between $100 and $300 in 2009, according to the Home Buying Institute.
- Lenders must ensure the property they plan to refinance has a clear title and that the borrower actually owns the home. The cost of this title search, including insurance, ranged between $400 to $700 in 2009, according to the Home Buying Institute.
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