Many homeowners are considering a refinance mortgage since the amount of your mortgage is tied to your payment and interest rates. Refinancing can include low mortgage rate refinance or increasing the years of the mortgage. If you want to refinance your home mortgage, there are some things to consider. Has your credit score improved, have interest rates dropped significantly since you financed your home or are you willing to extend your mortgage for a significantly longer period of time. Many homeowners have also considered a mortgage refinance if they are switching from an adjustable home mortgage to a fixed rate.
The Federal Reserve’s Consumer Guide to Refinancing Home Mortgage recommends
that homeowners reconsider a mortgage refinance if they have had their mortgage
for a long time, are considering a move from their home in the next few years
or if the mortgage has a prepayment penalty clause. In later years more principal
is paid down with every mortgage payment, making the refinance option less financially
sound for the homeowner. If there is a prepayment penalty and the refinance
mortgage is with the same lender, it is possible they would waive the fees,
it is important to determine that prior to the refinancing decision as the fees
can be significant.
Downsides to home mortgage refinance include difficulty in attaining the refinance,
fees and negative equity ratings. Bankers and Mortgage Lenders will determine
your eligibility for a mortgage refinance with a process similar to the approval
process that you went through with your first mortgage. This will include consideration
of your income and assets, credit score, other debts, the current value of the
property, and the amount you want to borrow. If your credit score has improved,
you may be able to get a loan at a lower rate. On the other hand, if your credit
score is lower now than when you got your current mortgage, you may have to
pay a higher interest rate on a new loan. When housing prices fall, your mortgage
may fall into negative equity. This can make home mortgage refinance difficult.
The fees on refinancing should be considered as well, it is common to pay 3
percent to 6 percent of your outstanding principal in refinancing fees. These
expenses are in addition to any prepayment penalties or other costs your banker
or mortgage lender may attach to the refinance process.
Fees for home mortgage refinance may include:
- Application fee. This charge covers the initial costs of processing your loan
request and checking your credit report. If your loan is denied, you still may
have to pay this fee. Cost range = $75 to $300
- Loan origination fee. The fee charged by the lender or broker to evaluate
and prepare your mortgage loan. Cost range = 0% to 1.5% of the loan principal
- Points. A point is equal to 1 percent of the amount of your mortgage loan.
The number of points you are charged can be negotiated with the lender. Cost
range = 0% to 3% of the loan principal
- Appraisal fee. This fee pays for an appraisal of your home, in order to assure
the lenders that the property is worth at least as much as the loan amount.
Cost range = $300 to $700
- Inspection fee. The lender may require a termite inspection and an analysis
of the structural condition of the property by a property inspector, engineer,
or consultant. Cost range = $175 to $350
- Attorney review/closing fee. Cost range = $500 to $1,000
- Title search and title insurance. Cost range = $700 to $900
- Survey fee. Cost range = $150 to $400
- Prepayment penalty.