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.
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.
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.
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