Mortgage Refinance Closing Costs

Mortgage refinance closing costs can make or break your home loan. Before gaining any benefit from today’s best rates you’ll have to recoup your mortgage refinance closing costs. The more you pay, including lender junk fees, the longer it’s going to take you to break even. You can avoid unnecessary fees and markup by finding the right person to arrange your new home loan. Here are several tips before you refi to help you get a better deal for your mortgage refinance closing costs.

Lowering Your Mortgage Refinance Closing Costs

In a nutshell, getting today’s lowest refinance rates boils down to having a good FICO score. Paying less for your mortgage refinance closing costs however, is tricky. How can you tell if you’re paying too much based on the fees quoted on your Good Faith Estimate? You can start by figuring out how long it’s going to take you to break even on your mortgage refinance closing costs. Here’s an example of how to do this.

Suppose you’re refinancing $225,000 of your previous home loan balance with today’s best refinance rates at 4.5%. Your old payment is based on a 6% interest rate at $1,348 per month. Mortgage refinancing at 4.5% will lower your monthly payment to $1,148. Great deal right? Before you get too excited about saving $200 a month it’s important to consider how much fees will set you back getting this lower payment.

You can easily figure this out by adding up the total of your mortgage refinance closing costs and dividing by the amount you’re saving each month ($200). In this example suppose your loan origination fee and closing cost total $6,000. Simply divide the $6,000 in mortgage refinance closing costs by the $200 you’re saving each month and you’ll have the number of months it’s going to take you to break even, in this case 30 months. The faster you recoup the fees you’re paying the better deal you’re getting on your mortgage refi.

How to Negotiate a Better Deal

One of the most common mortgage mistakes is neglecting to negotiate with lenders and brokers to pay less. All of the fees you’ll pay are negotiable and a little old-fashioned haggling can lower your mortgage refinance closing costs by hundreds, if not a thousand dollars. How much is reasonable to pay closing on your mortgage refi?

Starting with the broker’s loan origination fee there’s no reason to pay more than one percent of your home loan amount. Many brokers will try to charge you more, especially now that they can’t pad their commissions with Yield Spread Premium. Your broker is one important source of junk fees you’ll need to avoid. For example, any broker that charges a fee for locking mortgage refinance rates is just plain dishonest.

Other junk fees include loan processing fees, application fees, and broker courier fees. Administrative fees charged by the lender are also often inflated. (Think credit reports for example) I mentioned earlier that a better way to shop for your new home loan is to shop for a broker instead of a lender. Find the right mortgage broker to arrange your next home loan and you’ll not only pay less for the mortgage refinance closing costs but you’ll have a better experience overall.