How to Pay Less Refinance Closing Costs

Refinance closing costs are going down as much as 7% nationwide according to one lender’s recent survey. Mortgage rates are still at historically low levels making the most important aspect of refinancing (that you control) the fees you pay. Here are several tips to help you pay less refinance closing costs and get the best deal on your next home loan.

How Much Are Typical Refinance Closing Costs?

The mortgage fees you pay and how much depends on where you’re living and what kind of home loan you choose. Every mortgage loan has fees and refinancing is no exception. There are so-called no fee refinance offers out there but you’ll always be trading higher mortgage rates for the lender paying your loan origination fee and other closing costs.

The survey I mentioned claims that on average closing costs are down 7% from the previous year nationwide. It’s worth noting that the same survey had closing costs up 37% the year before thanks to new government regulation.

How much you end up paying when all is said and done depends on the state you live in along with the amount of your loan. If you live in a high-cost state like New York, California, or Maryland you can expect to pay more at closing than someone in Missouri which had the lowest average closing costs.

Some states like Florida levy a tax on all mortgage transactions driving up cost. Here are the top 5 most expensive states when it comes to refinance closing costs:

  1. New York where closing averages $5,435
  2. Texas where closing averages $4,619
  3. Pennsylvania where closing averages $4,467
  4. Florida, closing averages $4,395
  5. Oklahoma where closing averages $4,352

Which states have the lowest closing costs?

  1. Missouri where closing only averages $3,006
  2. Kansas, averaging $3,193
  3. Colorado where closing averages $3,193
  4. Iowa, averaging $3,257
  5. Arkansas where closing averages $3,325

Across the country refinance closing costs average $3,750, just shy of 2% of the home loan amount. Most brokers quote an outdated “rule of thumb” that closing costs should be 1.50%. There isn’t a state in the Union that came in close to 1.5% in the last survey.

How to Pay Less Refinance Closing Costs

The good news is that some of the mortgage fees you pay when refinancing are negotiable. The most commonly overpaid refinance closing costs include the loan origination fee and discount points, all negotiable. Loan origination is the fee paid to the person or company arranging your loan. I’ve seen origination fees as low as $400 with community credit unions or as high as 2%.

The less you pay for loan origination the better off you’ll be. If you don’t have cash to pay the originator you could accept a higher mortgage rate in exchange for the lender paying all or part of your closing costs. Don’t be afraid to haggle with potential brokers and lenders over loan origination.

Suppose for example you’re being quoted 30-year fixed refinance rates at 4.0%. In Texas the refinance closing costs for this mortgage average $4,619. You could accept slightly higher refinance rates at 4.25% and pay zero closing costs. On a $250,000 mortgage the difference in your monthly payment is $36.31.

Which is the better choice? It depends on what you’re already paying and how much longer it’s going to take you to break even recouping your out-of pocket mortgage refinancing expenses. If you’re unable to break even because of a higher payment amount or term length you’re going to be losing money, no matter what your interest rate.

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You can learn more about paying less refinance closing costs with today’s best mortgage lenders by checking out my free Underground Mortgage Videos.

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Here’s a quick sample to get you started paying less refinance closing costs and getting more…

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.

Click Here For More Details…

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.

  • Underground Mortgage Videos
Here’s a quick sample to get you started refinancing without paying too much for your next home loan…