Mortgage Refinancing - Counting the Costs

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By: Mike Hamel

Mortgage refinancing means paying off your existing mortgage with a new loan, using the same property as collateral. The amount you'll save by refinancing will vary depending upon current interest rates, refinancing costs and tax consequences.

Mortgage refinancing makes sense if Interest rates have dropped more than two points since you got your original mortgage, or if you want to change from an adjustable-rate to a fixed-rate loan to avoid future interest hikes.

As to the costs of mortgage refinancing; expect to pay between three and six percent of the mortgage, plus any prepayment penalties you might incur by paying off the existing loan. Below are some of the fees and charges you are most likely to encounter. Costs vary widely from state to state and loan to loan. These numbers are average estimates only.

Application Fee ($75 – $300): This charge covers the initial costs of processing your mortgage refinancing request and checking your credit report. Bad credit will result in a higher interest rate.

Appraisal Fee ($150 – $400): This fee pays for an appraisal which is a supportable and defensible estimate of the current market value of the property.

Attorney's Review Fees ($150 – $300): The lender will usually charge you for fees paid to the lawyer or company that conducts the mortgage refinancing closing. Settlements are conducted by lending institutions, title insurance companies, escrow companies, real estate brokers and attorneys for the buyer and seller. You may want to retain your own attorney to represent you at all stages of the mortgage refinancing transaction.

Loan Origination Fees (Usually 1% of loan): The origination fee is charged for the lender's work in evaluating and preparing your mortgage refinancing.

Points (1% of loan): Points are prepaid costs imposed to increase the lender's yield on the loan. Paying points can lower the interest rate, which will lower the monthly payments. Some lenders will roll the points into the loan. The downside is that the borrower will be paying interest on these fees over the life of the loan.

Private Mortgage Insurance (PMI) Usually 0.5% to 1.0% of loan): PMI is required when the amount of the mortgage is greater than 80% of the home's appraised value. This insurance protects the lender against loss if the borrower defaults on the loan.

Title Search and Title Insurance ($450 – $600): These cover the costs of examining the public record to confirm ownership of the real estate, and the costs of a policy insuring the policy-holder for any loss caused by discrepancies in the title. Be sure to ask the company carrying the present policy if it can re-issue your policy at a re-issue rate. This could save you up to 70% of what a new policy would cost.

FREE Refinancing Quote

Applying for refinancing is easier than getting a first mortgage. Much of the process can be done online. You can get a free, no-obligation quote from a leading mortgage provider at Easy Mortgage Refinancing.

Many homeowners get their mortgages, make their payments and don't think about refinancing. They wind up paying more than they have to for their homes.

Don't make the same mistake.

About the Author

Mike Hamel is the author of three business books and several articles about mortgage financing. His material is featured on sites like Bad Credit Mortgage Refinancing Now.

(ArticlesBase SC #54755)

Article Source: http://www.articlesbase.com/ - Mortgage Refinancing - Counting the Costs

Why Refinance Important

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Making decision to refinance is important.

Advantages and Disadvantages of Refinancing

• The single most obvious benefit to refinancing a home is that a refinancing package can free you from a high mortgage rate. Too often, individuals outgrow their original loans as a result of their changing financial needs and habits. Refinancing offers individuals the opportunity of updating their loan in order to accommodate to their new needs like children, income increase or decrease, and even college tuition
• Another serious advantage to a refinancing package is that many programs allow homeowners access to the equity that they have spent so much time establishing in their homes. Many homeowners need this cash in order to finance college education, begin a small business, consolidate debt, or to make any other large investment.
• One major disadvantage to refinancing one’s current home loan is that individuals must pay close attention to what they are going to spend over the life of the new loan compared to what they would have spent over the course of the original loan. The refinancing program should not ultimately cost the homeowner more than they would have paid with their original loan.
• Another disadvantage to refinancing is that homeowners must exercise a substantial amount of restraint and caution with regard to the equity that they have just been given and the amount of cash that has been liberated from their monthly expenses. Too often individuals hastily spend this money when it should be directed toward a long-term investment.

Mortgage basics

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The Federal National Mortgage Association (Fannie Mae) is a government-sponsored organization that purchases mortgages from lenders and sells them to investors. Two income-to-debt ratios established by Fannie Mae are standard requirements for conventional mortgages. The first requirement is that monthly mortgage principal and interest payments (P&I), plus insurance and property taxes, cannot exceed 28% of the buyer's gross monthly income (some exceptions may apply to increase this limit to 33%).

The second requirement limits total monthly debt payments (housing, credit cards, car payments, etc.) to 36% of gross monthly income. In addition to these requirements, you may have to pay 10% to 20% down on the total purchase price to qualify for a conventional mortgage.

Mortgage Rates and Minimum Incomes Needed to Qualify
Interest Rate	Monthly Payment	Minimum Annual Income
4%	$454	$21,770
5%	$510	$24,479
6%	$570	$27,340
7%	$632	$30,338
8%	$697	$33,460
9%	$764	$36,691
10%	$834	$40,017
11%	$905	$43,426
12%	$977	$46,905
Mortgage companies use ratios to analyze your mortgage payment. The above example shows the monthly payments of principal and interest, and income needed to qualify for a $95,000 mortgage at various interest rates, amortized on a 30-year schedule, assuming a payment ratio of 25%. Source: National Association of Home Builders, Economics Division.