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The hidden costs that come with refinancing

The hidden costs that come with refinancing

August 30, 2016
hidden costs
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Refinancing is great. It can be very helpful. In fact, there are many reasons to refinance and you can read about some of them here. But did you know that refinancing can sometimes come with some hidden costs?

Like those annoying closing costs weren’t enough, these pesky additional costs can really cause you headaches and make you pay thousands of dollars more. That’s why it’s always important to do your research and make sure that you take these extra costs into consideration and not just look at the financial benefits.

Here are five hidden costs you should be aware of:

1. Application fees

Application fees are initial fees charged for closing the old mortgage and opening the new one. They cost between $300 and $500 and are negotiable.

2. Loan origination fees

As a borrower, you can’t get out of paying the customary charge of 1-1.5% on the principal to prepare mortgage paperwork. However, what you can do is shop for lenders. This way, you’ll find the ones with the lowest charges.

3. Private mortgage insurance

This risk-management product protects lenders against loss if a borrower defaults. Most lenders required private mortgage insurance for loans with loan-to-value percentages that exceed 80% (this means that the borrower paid less than 20% of the home’s value upon purchase). By accepting private mortgage insurance, borrowers can make smaller down payments and get the mortgage sooner.

4. Prepayment penalty

A prepayment penalty is a clause in your mortgage contract which says that you have to pay a penalty if your mortgage is prepaid within a certain period. This penalty is based on a percentage of the remaining mortgage balance or a certain number of months’ worth of interest.

5. Appraisal fees

Appraisal fees pay for a professional appraiser to evaluate your home and estimate its market value. They usually cost between $300 and $500. However, some unique homes or homes in remote locations can cost more to appraise. You cannot borrow without an acceptable appraisal.

Final word

To avoid unpleasant surprises, it’s important that you do your research before you go out shopping for a new mortgage. Use a mortgage calculator,  factor in all the costs, and see if refinancing is the right thing for you.

Gary Morgan

Gary Morgan is a Britain transplant. Finance background, enjoys tea, politics and soccer (or football for everyone across the pond). Get in touch with him via email

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