Thanks to the current mortgage rates trend, the allure of cashing out on your home’s equity or shortening your loan term are reason enough to take advantage of current refinance mortgage rates, but at what cost? Today we’ll discuss one of the most frequently asked mortgage questions: What factors influence the cost to refinance? Knowing these factors will help you narrow down what to look for in a lender and loan so you can get your best-refinanced loan possible.
5 Factors Influencing the Cost to Refinance Your Home
Lender Fees & Closing Costs
The cost to refinance a home loan (on average) is 2-5% of the loan’s principal, used to cover lender fees and closing costs. Large loan amounts typically see a lower percentage of closing costs, while smaller loan amounts tend to see upwards of 5%. As of June 2020, the average closing cost to refinance a mortgage was $4,345. This amount is split between multiple lender and third-party fees, with the following fees being the most common:
- Application Fee- $75-$500
- Origination Fee - Up to 1.5% of the loan amount
- Credit Report Fee - $30-$50
- Home Appraisal - $300-$500
- Home Inspection - $300 - $500
- Flood Certification - $15-$25
- Title Search & Insurance Fee $400-$900
- Recording Fee $25-$250
- Reconveyance Fee - $50-$65
Depending on the entity financing your loan, you may experience higher than usual or completely new fees you weren’t expecting. These are known as junk fees, and they’re one way for lenders to gain a larger profit from your refinance. Junk fees are usually hidden within the main list of fees in the form of higher charges. At the end of the day, double-checking your refinanced loan is your responsibility, so be sure to check over your lenders’ fee charges before you get to the closing table and make sure you’re not spending more than necessary to get a better loan.
The type of loan (FHA, Conventional, VA loan) you refinance with will play a role in the cost to refinance. FHA loans, for example, require a 1.75% mortgage insurance fee to be paid upfront. As of December 1, 2020, conventional loan refinances will include a new adverse market fee for borrowers to pay. Rather than being added to the closing costs, an adverse market fee between .125% to 0.25% of the total loan amount is charged directly by the lender to the borrower through an increased interest rate. VA loans are subject to a .5% funding fee, regardless of service history or how many times they’ve utilized the VA loan program.
Your interest rate affects the total cost to refinance and is based on several factors, including your location (yes, interest rates can vary from state to state), loan type, loan term and financial health. Financial health includes how strong your income, credit score and debt-to-income ratios are. The interest rate you’re approved for then goes on to play a role in your overall cost to refinance since you will pay somewhere between 2-5% of the total loan amount to refinance.
Current mortgage rates won’t last forever, but there are still ways for you to lower your rate and, ultimately, the overall cost to refinance now and in the future. Known as buying down the rate, you have the option to pay discount points directly to your lender in exchange for a lower interest rate. How this works is you’ll pay some interest up front, and in return, you will get a lower interest rate over the life of your home loan. This is another factor you’ll want to check with your lender to see their discount point policies and how much of a difference they can make in your cost to refinance.
When it comes to home loan refinancing, Wyndham Capital mortgage is the easy mortgage company you want on your side. From lighting speed approvals to zero junk fees charged to our borrowers, we’ll have you in a shiny new home loan at a lower rate and in less time than leading competitors. Contact Wyndham Capital today to get started on refinancing your home loan.