Closing Costs & Your Risk Refinancing

Refinancing your home loan can lower your payment at the expense of cash out of your pocket. Every mortgage loan has fees that have to be paid at closing, even those “no-fee” refinance offers come at a price. Here are several tips to minimize the risk that comes from refinancing your home so you’ll keep more of your hard-earned cash.

Mortgage Closing Costs

Your exact closing costs can be found on the HUD-1 Settlement Statement in your mortgage disclosure package. Typical refinancing closing costs include paying fees for the application, loan origination, discount points, appraisal, title search and insurance and any prepayment penalty from your current lender. Common mortgage junk fees include rate lock, third party processing and broker courier fees.

Think that you can get around paying closing costs with one of those no-fee refinance offers? Remember there are no free lunches when it comes to your finances. There’s always a catch when the lender offers to pay for something…it usually means you’re getting higher refinance rates.

Some Mortgage Fees Are Negotiable

The most commonly overpaid mortgage refinance fees are the loan origination fee and discount points. Origination fees are paid to the person or company arranging your refi. This could be you broker, mortgage company, lender or bank. One percent is a pretty standard amount to pay for the broker’s fee; however, I’ve reviewed community based credit unions that charge as little as $400 for the loan origination fee.

What about discount points? Some homeowners focus on getting the lowest possible refinance rates at the expense of fees, including discount points. This is a fee you pay to essentially buy down your mortgage rate. One discount point is one percent of your loan amount and typically lowers your interest rate by .25% per point. Is it worth it? Discount points are a relic of the 1980s when double-digit mortgage rates were what you paid. You could buy your rate down by half a point and quickly recoup your cash from the lower payment.

Fast forward to today’s refinance rates which have bottomed out below 3 percent. The benefit you’re getting by paying points is marginal with interest rates so low. Recouping this out of pocket expense along with your other closing costs can be difficult, even impossible for most homeowners. The problem is that most lenders quote refinance rates that include discount points, making apples-to-apples comparisons of even today’s best mortgage lenders nearly impossible.

Breaking Even On Your Out-of-Pocket Expenses

You can approximate how long it’s going to take to break even from mortgage refinancing by dividing your total closing costs by the amount you’re saving each month. If your mortgage payment goes down by fifty bucks but you have to pay $1,600 to close it’s going to take you almost 3 years to benefit from refinancing. Most homeowners refinance every 4-5 years for one reason or another. If you’re unable to break even on your closing costs you’re going to be losing money no matter how much you’re buying down your refinance rates.

Refinancing Your Home is a Risk

Like just about everything else with your finances, refinancing your home comes with risk. You can minimize your risks by choosing the right type of mortgage (Fixed vs. Adjustable Rate) and term-length. The term-length of your home loan is the amount of time you have to repay the mortgage and along with the interest rate determines your payment amount.

There are advantages to both 15-year and 30-year home loans depending on your financial goals and budget. If your budget can support the payment that comes with a 15-year mortgage you can save yourself a boat-load of cash in finance charges by going shorter.

Remember the less you pay at closing for things like mortgage loan origination the sooner you’ll benefit from the new home loan. Careful refinance rate shopping comparing both interest rates and fees can save you thousands of dollars out of pocket and ensure you’re getting a better deal than your neighbors when refinancing.

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You can learn more about getting the best deal on your next home loan while avoiding unnecessary fees by checking out my free Underground Mortgage Videos.

httpv://www.youtube.com/watch?v=be9md0A0_2c
  • Underground Mortgage Videos
Here’s a quick sample to get you started refinancing without paying too much for your next home loan…

Mortgage Refinancing With Your Bank

Mortgage Refinancing with your bank can be a fast and convenient way of lowering the monthly payments on your home loan; however, is your bank really the best place for avoiding hidden markup and junk fees? Mortgage refinancing can save you thousands of dollars if you find the right person to arrange your next home loan; choosing the wrong person could cost you. Here are several of my best tips for getting the lowest mortgage rate while avoiding paying too much in closing costs and fees.

Is Mortgage Refinancing With Your Bank a Good Idea?

Many of your neighbors choose bank mortgage refinancing because it’s a quick and easy avenue to a new home loan. What could be easier than automatically transferring your mortgage payment from your checking account each month? The problem with bank originated mortgage refinancing is what your banker isn’t telling you and isn’t obligated to tell you. You see, banks are exempt from the Real Estate Settlement Procedures Act that requires loan originator to disclose their profit margin and markup of your interest rate. The banking lobby spent millions of dollars lobbying congress in the early nineties to have this key bit of disclosure legislation changed to exclude banks, thereby giving them an unfair advantage. When it comes to your home why would you even consider working with a lender that doesn’t have to play by the rules?

Bank Service Release Premium

I’m going to take a moment to explain how your bank exploits this loophole in the Real Estate Settlement Procedures Act. Every mortgage lender out there, banks or wholesale lenders alike makes money by selling their loans to investors on the secondary market. The higher the interest rate on these loans, the more profit lenders make from investors. Wholesale mortgage lenders have a disadvantage next to banks because their customers know how much their mortgage rates were marked up to create this profit for the lender. Not everyone understands it, but a savvy homeowner can save thousands by recognizing and avoiding this markup.

Your bank isn’t required to disclose any of this mortgage refinancing markup. They know the home loan rates other lenders are offering their customers; however, they mark the bank mortgage rates up as much as they think their customers will pay to create this extra profit known as Service Release Premium for the bank. Because your bank isn’t required to disclose any of this markup you to you all you’ll get when mortgage refinancing with your bank is an Annual Percentage Rate based on a Good Faith Estimate filled with low-balled fees.

Wholesale Mortgage Refinancing?

It is possible to refinance your home loan with a wholesale mortgage rate and pay only a one percent origination fee in the process. Banks simply do not offer their customers wholesale mortgage rates because they don’t have to; however, find the right mortgage broker and you can get this kind of deal and save yourself as much as $1200 per year from unnecessary markup. Who is the right mortgage broker for mortgage refinancing with a wholesale rate? Look for an independent, self-employed broker. These brokers will be much more willing to negotiate the type of deal that gets you wholesale rates without points or junk fees.

You can learn more about mortgage refinancing with wholesale rates by checking out my Underground Mortgage Videos.

httpv://www.youtube.com/watch?v=be9md0A0_2c

Here’s a quick taste to get you started cutting as much as $1200 worth of fat from your mortgage payments every year.

Refinance FHA Home Loan

Typing Refinance FHA Home Loan into Google might have brought you here today searching for the best way to get a new home loan. Did you know that simply searching for Refinance FHA Home Loan could result in overpaying thousands of dollars for your new mortgage loan? Many homeowners get a false sense of security because they get FHA home loans; however, government backing by the FHA does nothing to protect you from unnecessary markup or junk fees. Here are several tips to help you avoid the trap of simply typing Refinance FHA Home Loan and save thousands of dollars from unnecessary markup and junk fees.

Refinance FHA Home Loan Online

The internet is a great resource for your home loan. Just type Refinance FHA Home Loan into your browser and you’re on your way to finding great loan offers, right? Not exactly…what you might not know about those refinance FHA home loan offers is that they all include markup intended to create a commission for the person arranging the home loan. Nothing wrong with that you’re saying…mortgage brokers deserve to get paid too. The problem is that you’re already paying the person arranging your refinance FHA home loan a perfectly good loan origination fee. Any markup of your interest rate for lender paid compensation is at your expense in the form of a higher than necessary monthly payment.

How does this unnecessary markup of your mortgage rate quote work? Wholesale lenders publish daily rate sheets used by mortgage brokers to quote mortgage rates. These rate sheets include various amounts of markup intended to generate the fee known by mortgage fat cats as Yield Spread Premium. Simply put, brokers who lock and close your refinance FHA home loan with a higher than necessary interest rate get one percent of your loan amount for every .25 percent they overcharge you. Think of this fee as an incentive for overcharging you. Mortgage lenders do this because any refinance FHA home loan with a higher than market interest rate brings them a premium profit when sold to investors on the secondary market…this is how lenders make the majority of their profits.

How to Pay Less for Your Home Mortgage Loan

What your lender doesn’t want you to know is that you can get a wholesale mortgage rate. Wholesale mortgage rates are also known as par mortgage rates; this simply means there is no Yield Spread Premium generated for the broker and you won’t pay discount points to qualify. Most mortgage brokers will tell you that you cannot get wholesale rates because they’re protecting their commission. Truth be told, find the right mortgage broker and you’ll not only get a wholesale refinance FHA home loan but can avoid paying junk fees in the process.

What should you be paying for your refinance FHA home loan? A mortgage origination fee of one percent is more than reasonable for the broker’s work. This is assuming there is no Yield Spread Premium and you’re not finding junk fees on your HUD-1 like the broker courier fee. Here’s a bonus tip, never rely on the Good Faith Estimate to provide reliable lender fees; it is after all just an estimate given in “Good Faith.” When it comes to home loans the final word in lender fees is the HUD-1 statement. Lenders are required to give you one at least 24 hours prior to closing. If you’re not going through this document with a fine-toothed comb you could be losing thousands of dollars in unnecessary fees.

You can learn more about getting a wholesale mortgage rate for your refinance FHA home loan while avoiding junk fees by checking out my free Underground Mortgage Videos.

httpv://www.youtube.com/watch?v=be9md0A0_2c

Here’s a quick video to get you started that exposes your lender’s dirty secret that according to the HUD Secretary will be responsible for fleecing American’s out of sixteen billion dollars this year alone.