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| Typical costs: | - Refinancing a mortgage can cost as much as 3 percent to 6 percent of the amount borrowed, or $4,500-$9,000 to set up payments on a debt of $150,000, according to BSCAlliance.com. That estimate includes a $75-$300 application fee, a $150-$400 appraisal, a $175-$350 home inspection, $75-$200 for lenders' attorneys fees and other charges.
- Companies such as INGDirect.com don't charge application, processing or other fees, lowering the cost of refinancing to about $1,500-$2,500. The trade-off is usually slightly higher interest rates.
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| What should be included: | - Refinancing simply means replacing your current mortgage with a new one that has (you hope) better terms, such as a significantly lower interest rate, avoiding a balloon payment, cutting total costs by repaying the loan more quickly or other factors. FederalReserve.gov gives step-by-step instructions for finding the best possible mortgage, including a glossary of common terms and a detailed worksheet for comparing potential mortgage offers.
- Some company-sponsored online mortgage "calculators" give a somewhat rosy view of the benefits of refinancing; MtgProfessor.com lists the payoffs and potential hazards of refinancing, and provides a break-even calculator to accurately assess your situation. This site also provides a range of mortgage calculators for almost every possible circumstance.
- Traditional mortgage brokers make a profit by marking up the wholesale mortgage rates and consumers don't know the true cost of the loan until after the application is submitted. A new trend is upfront mortgage brokers, who disclose their total fee in advance, in writing; Sideroad.Com gives an overview.
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| Additional costs: | - Some "predatory lenders" urge refinancing when it's not in the homeowners' best interests or charge fees for unnecessary or nonexistent products or services; HUD.gov lists tips to avoid loan fraud.
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| Discounts: | - Refinancing some existing FHA mortgages can be streamlined, which means less documentation (such as no appraisal and therefore no appraisal fee)--but setting up the new mortgage still costs money. The amount depends on the size of the loan and the lender's terms.
- Your current loan payment may include mortgage insurance, which covers your lender, not you, and runs $500-$1,200 annually for a $200,000 mortgage You might be able to cancel this insurance when refinancing if your equity in your home is more than 20 percent; MtgProfessor.com gives an overview.
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| Shopping for refinancing a mortgage: | - MtgProfessor.com gives a quick overview of possible hazards and four approaches: responding to a solicitation, using an upfront mortgage broker, using a fixed-market lender and shopping online. Some web sites suggest applying to your current lender first, because the it will offer the best deal in order to keep your business.
- Sites such as MortgageLoan.com and LendingTree.com provide several quotes. Be sure an online broker represents a number of lenders and not just one; Sideroad.com gives tips and guidelines for using online services.
- The Upfront Mortgage Brokers Association explains this type of service and providers referrals to its members.
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Article updated November 2006 |
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