How a Refi Could End Up Costing Youby Tim Manni
Thousands of Americans are flooding mortgage lenders’ offices hoping to save money by refinancing their mortgage to a new lower rate.
Yet there are several refinancing fees that could end up costing you. SmartMoney.com has compiled four refinancing costs to look out for:
1. Processing Fees: While they are a given part of the refinancing process, Smart Money warns that “While charging an application fee of several hundred dollars is normal, adding several other charges for the same amount of work is not. Be sure to compare several lenders’ fees — and question anything that seems redundant.”
2. Fannie and Freddie’s Cut: F&F raised their fees on April 1 of this year. “Depending on the borrower’s credit score and the size of the loan relative to the home’s value, these so-called loan-level price adjustments can range from 0.25% to 3% of the loan.” A general rule of thumb is, the lower your credit score, the more you’ll have to pay.
3. Appraisal Fees: Beginning on May 1, lenders who service Fannie and Freddie loans won’t be able to communicate with appraisers, so many lenders will be forced to collect appraisal fees up front. Also, appraisers are now required to use a special form that takes them longer to complete, driving up their hourly costs.
4. Private Mortgage Insurance: As we said earlier, the lower your credit score, the more you will pay in the long run. “…private mortgage insurance, or PMI, is getting more expensive for borrowers with lower credit scores, says Tom Taggard, a spokesman for PMI, a San Francisco-based mortgage insurer.”
When is it worth refinancing?
In the April 1 edition of “Bottom Line”, HSH Vice President Keith Gumbinger wrote that it’s generally best to refinance on when “Your current fixed-rate mortgage is high enough — at least 6.5%, based on current rates — that the savings from the lowered mortgage rate will allow you to recoup the price of closing costs in 24 months or less.”