How to Refinance

How to Refinance: Closing Costs Explained

by Gabriel Traverso
Mortgage Directory Columnist

Some people don't understand or aren't totally prepared for closing costs when they refinance their home loan. If you know what to expect and ask the right questions, there shouldn't be any surprises.

The Cost of Refinancing Your Mortgage

The amount you have to pay for closing costs when you refinance your home loan is predictable, especially if you know the lingo. Closing costs are generally 2% to 3% of the loan but can go as high as 7% so keep in mind that some closing costs are negotiable and make the best deal you can. Here is a brief explanation of the typical closing costs you can expect:

• Title and escrow fees: The title fee works like an insurance policy to protect both you and the lender. The escrow fee goes to a third party for facilitating the transaction between you and the lender.
• Lender fees: These fees, which have many different names, are the flat fees the lender charges you for the loan. You may be able to negotiate these fees.
• Points: These are discount fees or origination fees, which all you to "buy down" the rate on your home loan. You may be able to negotiate points.
• Appraisal fees: This is a fee charged by a third party to inspect and appraise your property.
• Credit fees: A fee charged by the lender to pull your credit report.
• Insurance: Private mortgage insurance (PMI) is required when you don't have sufficient equity in the home. If you have 20% equity or more, PMI isn't required.
• Taxes: Property taxes must generally be current at the time of closing. Depending on the timing, a charge for the appropriate tax payment may be included in your loan fees.

Refinancing Preparation

If you know what to expect in advance, have done your research by asking plenty of questions, and have negotiated the best deal you can, then you should have a smoother refinance experience. Knowing how to refinance means no surprises at closing.

Source
Federal Trade Commission: Looking for the Best Mortgage

About the Author
Gabriel Traverso is a freelance writer, independent musician, and artist. He resides in Reno, NV.