Understanding Refinancing Fees and Costs

When you refinance your home mortgage, you need to shop for more than interest rates. Points, origination costs, lock-in fees, documentation, attorney fees and notary public costs are just a few of the additional charges that can change the overall cost of refinancing. It’s important to understand refinancing fees and costs before you sign on the dotted line.

First and foremost, you need to understand the APR, or annual percentage rate. This is the single largest cost associated with a home mortgage loan. The APR includes the interest rate, points, loan service fees and brokerage fees that are charged each year you are in the loan.

The interest rate is a percentage of the outstanding balance charged each month. Each month you pay off more of your principal (actual loan amount) and interest on the remaining balance. As your loan principal decreases, the amount of interest charged also goes down. Your payments typically stay the same, however, paying off more and more of your principal each month.

Points are a percentage of the loan paid in exchange for a lower interest rate. Points are usually paid upon closing and annually for a specified number of years of the loan. One point of a $300,000 loan is $3000. Do the math to compare the additional interest you might pay and the points.

A loan origination fee is either a flat fee or a percentage of the loan the lender charges to process the loan. These may or may not include fees for an appraisal, loan rate lock-in, credit report, inspection and document preparation.

Some lenders offer a free appraisal or no appraisal at all, if your refinance loan is to be significantly lower than the home value. Other lenders require an appraisal but allow you to hire, and pay, for your own appraiser. Appraisers assess the market value of the home.

When the housing market is in an upswing or interest rates are expected to increase within sixty days, some lenders will offer a locked-in rate, essentially offering you a low interest rate if you are able to close within a 60 to 90 day period. While some lenders do this as a courtesy, others charge a point (see above) or a flat fee.

Your credit worthiness is of up-most importance to lenders. They are assuming the risk of your repayment of the loan, they don’t like to repossess real estate. For this reason, a credit report is essential to the lenders so that they can evaluate how much risk they are assuming. A credit report fee is typically under $100.

Documentation preparation, or doc fees, include the costs of preparing documents for closing. These fees are arbitrary.

The title company responsible for the closing will also charge their own fees. A title fee is charged for documenting property ownership, though most refinancing loans will not require this. Notary public fees are usually charged to verify signatures. Some states require an attorney to oversee loan closings, the attorney fee is charged via the title company. Title insurance protects against hidden property claims. Some title companies also charge for photocopies and/or faxing.

Each of these fees must be disclosed on your settlement statement. Your settlement statement is essentially an itemized invoice of each and every cost of your refinance loan. Many of these fees can be negotiated down or you can request that they be included in the loan amount.