Some surprises in life are good. That unexpected bonus at work or the extra shot of espresso the barista added to your cappuccino are among them. Other surprises? Not so good. The home buying and refinancing process are places where you don’t want any surprises coming your way. And if you don’t prepare ahead of time for typical refinance fees, you could be in for a number of unpleasant surprises.
An essential piece to prepare for is the added fees that come along with the process. Especially in the world of refinancing – which is usually a way to save money – you don’t want to wind up paying more than you planned for.
If you’re refinancing, it’s good you’re here. Take a look at some of the typical refinance fees to prepare for.
Why it’s important to about know typical refinance fees
When people talk about the cost of buying a home or refinancing, the fees are often referred to as “the closing costs.” The term can be deceiving since it creates the interpretation that there is one fee that you will have to pay.
In fact, many fees can and will arise. Exactly how many may depend on your lender and the specifics of your refinance. When you understand everything that can come along and educate yourself about why they might come up, you will be in a much better position to decide whether a refinance is right for you at this time.
Five typical refinance fees to know about
The most common fees could be small and seemingly insignificant, or they could become a more considerable nuisance that makes you rethink what you’re doing. Fortunately, by understanding these costs, you’ll see them coming and be able to make an appropriate decision ahead of time.
1. Loan Application Fee
This is precisely what it sounds like: a fee just so you can apply for a loan or, in this case, a mortgage. It never feels quite right that people do this, but they do have employees and their own processing fees to account for. A loan application fee is often unavoidable and could be anywhere from $75 to $500.
2. Origination Fee
An origination fee is a fee associated with the creation of the loan. Origination fees are a percentage of the total amount of the loan. The fee will range anywhere from 0% to 1.5% of the mortgage amount in most cases. This typical refinance fee can amount to one of the largest fees depending on the size of your refinance.
3. Title Search / Insurance Fee
If you need to conduct a search for the title or pay for title insurance there will be fees with that too. These fees are well worth it to avoid the risk of somebody making a claim on your home in the future. You should expect this fee to be at least $400 and possibly up to $1,000.
4. Mortgage Points
Points can be confusing to somebody that hasn’t dealt with them before. They are essentially a piece of the loan that you pay upfront. Points are often optional and lower the loan’s interest rate since it reduces the lender’s risk.
Each ‘point’ you buy is equal to 1% of the loan amount. So, on a $400,000 refinance, buying .5 points would be .5%, creating an additional $2,000.
5. Settlement Fee
It’s best to have a professional oversee the closing of the loan process, and some states even require it. Whether this person is a title agent or real estate attorney, their services will come with a fee. You should expect this typical refinancing fee to be anywhere from $500 to $1,000.
Remember that with refinancing, many of these fees can be rolled into the total of your refinance, so you wouldn’t need to pay them upfront. Save this as an option, but take account of how this could change the landscape of paying your loan.
What are your goals in refinancing? Which of these typical refinance fees do you feel could get in the way of your plans?