My Secure Advantage

Hidden Costs of Refinancing

Refinancing your mortgage can be tempting when it gives you the opportunity to lower your interest rate or monthly payment, but the process of refinancing also comes with costs that may surprise you.  Before you choose to refinance, consider your ability to pay the following expenses often associated with adjusting your mortgage.
By MSA Staff

Refinancing your mortgage can be tempting when it gives you the opportunity to lower your interest rate or monthly payment, but the process of refinancing also comes with costs that may surprise you.  Before you choose to refinance, consider your ability to pay the following expenses often associated with adjusting your mortgage.

When you refinance your mortgage, you are essentially paying off your current loan with a new loan.  Getting a new loan will have closing costs, like when you first purchased your home.  In general, the costs associated with refinancing can range from 3-6% of the loan amount.

Paying Extra Interest

Refinancing a mortgage in order to lower the monthly payment can help a tight budget currently struggling to make ends meet; however, lowering the monthly payment often involves extending the life of the loan, which means paying more interest over time.  For example, if you refinance a 25-year-old loan for a 30-year mortgage and lower the interest rate from 5% to 4%, you will lower your $1,169 payment to $955 (saving you $214 a month!), but this also means you will pay an extra $35,745 in interest over the life of the loan.

Lender Fees

When you refinance your mortgage, you may end up working with a lender that requires fees for the application, origination, processing and underwriting.  For example, the origination fee is typically 1% of the loan amount, so for a $200,000 mortgage, you may want to plan on paying a $2,000 fee.  The offer you get will differ from lender to lender in regards to the closing costs, processing time and interest rates, etc.  Make sure you get the best deal by comparing loan terms before choosing a particular lender.

3rd Party Fees

The refinancing process can also include using third parties for things like the appraisal, title insurance, escrow or notary services.  All of which, unfortunately, may require a fee as well.  While third party fees will vary depending on the service provider, you can still plan ahead for an estimated cost.  The appraisal fees will typically be around $400, and the title insurance may cost anywhere from $400-$800 – depending on the appraisal value of the house.

Meeting the Costs

Does the thought of refinancing sound a bit daunting, now?  Sure, refinancing your mortgage can have pretty big costs, but that doesn’t make it impossible.  Refinancing can give you plenty of financial advantages.  For example, it could allow you to lower your interest rate – saving you money over the life of the loan, or it could enable you to accelerate the pay-off, so you can put more money towards other financial goals.  The bottom line is that whatever your objective is, it’s important to review the pros and cons, and prepare for the associated costs, so you can meet your objective and move forward financially confident.

Next Steps

How do you do that?  Consider talking with a Money Coach who is a Mortgage Specialist.  Your coach can help you weigh the pros and cons, and help you adjust your budget to account for possible expenses and a new monthly payment.  They can also show you how to access home financing calculators, so you can crunch the numbers.  And, they can introduce you to Wallet, an online money management tool that makes budgeting easier with your account activity in one place, an interactive calendar with bill reminders, and more.

It’s amazing how far you can go with some planning, support and dedication.  Call 888-724-2326 today to feel more confident about how to handle your mortgage.

Facebook ShareTweetReddit shareLinkedIn shareEmail share

More Like This

Tips & Tricks

The costs of college can be shocking. You will want to consider total costs, including tuition, room and board, books and supplies, personal...

Polls & Surveys

Did you experience higher healthcare costs this past year?  50% of employees with health insurance did.1  Statistics from a recent, reputable survey* revealed that increasing healthcare costs lead to poor financial decisions that not only prove harmful for your current situation but for your future as well.  Take a moment to understand the potential harm […]

Tips & Tricks

A home should be a fun place for your family – not a burden on your finances.  If you’re considering homeownership, you may be surprised by the extra costs that pop up during the purchase process.  We’ve got some tips and insight that will give you a better idea of what to expect financially. First […]

Events & Entertainment

This year, if you pay attention to a few small details, you’ll find big holiday savings.  Get smart with your spending and make sure your bank account has a happy Christmas too. Here are a couple tips to get you started. Cut Down Your Coffee Costs A quick stop for a boost of liquid energy […]