Right now, many homeowners are considering refinancing their mortgage. Currently, interest rates are low and mortgage lenders and banks are eager to help homeowners avoid losing their home. However, homeowners should be aware of the costs of refinancing a mortgage. Here are some of the most common costs and expenses when refinancing a home loan.

Many times, homeowners are surprised at how much money refinancing a mortgage can cost. They are not aware of closing costs, private home insurance, mortgage prepayment penalties, points that need to be paid up front, and other fees. Sometimes, these fees and costs can outweigh the benefits of refinancing. Here are some common costs and fees you should be aware of prior to signing any mortgage refinancing agreement.

-Home Loan Origination Fees and Costs
This fee is paid for the work that the mortgage lender or bank does when they evaluate and for preparing your mortgage refinancing application. Typically, this fee equals around 1% of the total loan amount.

-Mortgage Prepayment Penalties
Many homeowners, without even knowing it, have a clause in their home loan that states if it is paid off early, there is a penalty. This means that when refinancing a mortgage, you will need to pay the mortgage prepayment penalty. You can easily find out if, and how much, this penalty is by examining your current mortgage documents.

-Home Appraisal Fees
Many times when refinancing mortgage lenders and banks require a recent appraisal of your home. This is to help them evaluate the homes value, and potential. This is yet another cost that may need to be paid by the homeowner prior to getting a mortgage refinancing. This can cost between $200 and $300 dollars.

-Prepaid Points for your Home Loan
When a homeowner prepays for points on their home loan in order to lower the interest rate. One point equals 1% of the entire home loan amount. While this will reduce the interest rate you get, it is required to be paid upfront. The amount of points that need to be paid is different from person to person and depending on the housing market.

In general, homeowners should expect to pay around 5% of the total loan amount when they refinance. While this number is different depending on the situation, it is a good general estimate. Always know the exact amount that is required to pay prior to signing any refinancing agreement. Sometimes, in order to save some money, a homeowner may want to check with their current home loan provider and see what options exist. Many times, a homeowner is able to get a better deal from their current mortgage lender or bank than from a competing one.

-M Petrone

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