3 Nov

What Fees Should You Be Leery Of With Mortgage Loans

Today more than ever before Americans are refinancing their homes, taking advantage of lower interest rates. The last 4 years have seen interest rates for mortgages below 5%. Late 2012 saw an all tine low of 3.31%. When you refinance your property, it is common to pay anywhere from 3.5% to 6% of your remaining principle in refinance fees, which are not one single fee but rather many smaller fees, which add up quickly. The refinance fees you face will vary by state and by lender. When you refinance you need to beware of hidden fees, and understand which fees you can avoid, although most of these fees cannot be avoided sadly. There are some costs as well which aren’t fees and are optional that can be to your benefit. We will discuss the various costs, fees and charges involved with refinancing your mortgage.

Application fee.
You can be denied a refinance and still have to pay this fee. It covers the credit check and some clerical work. This can cost from $75.00 to $300.00

Discount points:
This is a fee which is equal to 1% of the loan. Your mortgage or refinance might be 6% interest and a charge of 1 point making the interest 7% in this example on a 100,000.00 home the 1 point would be $1000.00, which if you paid the $1000.00 it would knock the interest back down on the loan to 6%. A lender may charge anywhere from 1 to 4 points on average. The more points you pay off when taking out the loan or refinance, the lower your interest will be. These points and cost of them are tax deductible. Points as prepaid interest reduce the interest rate, but raise the closing costs. If you are doing a quick property flip not buying the points is best, but if you plan to stay in the home for many years then lowering the interest via points will help reduce your long term costs.

A lender might offer you a 20-year fixed mortgage of $170000.00 at 6 percent interest with no points. The monthly mortgage principal and interest payment would be $1,426.27. If you pay 2 points at closing for a cost of $3400.00, you can bring the interest rate down to 5.5 percent, with a monthly payment of $1,377.74 . The savings difference would be $48.53 per month. But it would take 70 months or close to 6 years to earn back the $3,400.00 spent to lower your monthly payments. If you plan to own the house for the entire 20 year duration of the loan, paying the two points would save a little over $8153.00 dollars on your mortgage, just by paying two points at closing to reduce your monthly payments in the long term.

Paying your loan off early penalty:
Some mortgages will assess a fee should you pay it off early. If this is so, it will be listed in your mortgage contract. The penalty can be upwards of 6 months of interest. Any Federally issued or insured loan will be exempt from this fee, such as FHA and VA loans. Some states bar this penalty, but you should be aware of the possibility. If the refinancing is with the same lender, ask your lender if the prepayment penalty can be waived, sometimes a refinance done with the same lender can get this penalty waived. Any prepayment penalty can add to the time it takes to break even from the refinance, so you need to compare this penalty to what you are gaining.

Title insurance:
You will have to pay this insurance to get your refinance. Court records are searched to see if you have actual ownership of the property, and to check for any liens that may be present on the property. This insurance will protect the lender by covering them for any errors made during the court records search and lien search. This can cost you anywhere from $500.00 to $800.00 on the high end.

Property Survey:
You might be required by the refinance lender to survey the property, as well as any improvements that have been made since you bought the property. This can cost from $200.00 to $500.00

Appraisal fee:
This fee is hard to avoid, unless you have not owned the property long and have had one done not to long ago. If you have owned the property for a long time, and your property has gone up in value the appraisal can work in your favor. Cost ranged from $250.00 to $500.00. It should be noted however that some lenders and brokers will include this fee as part of the application fee.

Loan origination fee
This fee refers to the initiation and completion of the home loan or refinance process. This fee can cover the work of credit checks, income verification, asset checks, and employment information, and paperwork, clerical work and the like. This fee goes to the paid to the loan officer or broker who completes your loan. It is pretty much the originator’s commission. It is often 1% of the loan principal, but can be as high as 1.5% of the principal.

Inspection fee
May be required by the lender to check your structural stability, check for water and mold damage, termites, the plumbing, the wiring, septic system and your water system. This can cost from $100.00 to $450.00

Attorney review/closing fee
If lawyers are needed by the lender for any reason you will pay. This is often the case at the closing and can cost your from $500.00 to $1,500.00