Mortgage Refinancing (continued)

Application Fee. This charge imposed by your lender covers the initial costs of processing your loan request and checking your credit report.

Title Search and Title Insurance.  This charge will cover the cost of examining the public record to confirm ownership of the real estate. It also covers the cost of a policy, usually issued by a title insurance company, that insures the policy holder in a specific amount for any loss caused by discrepancies in the title to the property. Be sure to ask the company carrying the present policy if it can re-issue your policy at a re-issue rate. You could save up to 70 percent of what it would cost you for a new policy, particularly if you cut out the middleman.  Visit for more information about reducing title insurance.

Lender's Attorney's Review Fees. The lender will usually charge you for fees paid to the lawyer or company that conducts the closing for the lender. Settlements are conducted by lending institutions, title insurance companies, escrow companies, real estate brokers, and attorneys for the buyer and seller. In most situations, the person conducting the settlement is providing a service to the lender. You may also be required to pay for other legal services relating to your loan which are provided to the lender. You may want to retain your own attorney to represent you at all stages of the transaction including settlement.

Although you can save substantially by refinancing your mortgage loan to enjoy a lower interest rate and reduce your monthly house payments accordingly, there are pitfalls to watch out for when refinancing your mortgage.  Tips on reducing mortgage refinancing costs and ways you can benefit by mortgage refinancing are as follows:

Tip 1:  Use the same mortgage lender that holds your original mortgage loan  

Why do this?  Because your current mortgage lender might agree not to charge you certain closing costs, such as the appraisal, credit check and title search fees.  Your current lender can also update your title insurance, rather than obtaining a new policy, saving you even more. (Since the title insurance is with the same company, ask that they give you a discount of about 30-40%.)  The best reason of all, however, is that your lender might agree to give you a lower interest rate than the competition.  After all, it doesn't want to lose your business.  

Tip 2:  Get rid of private mortgage insurance

If the equity in your home is 20 percent or more, you are no longer required to have private mortgage insurance.  However, very few lenders will every notify you of this fact.  If you are no longer required to have private mortgage insurance, request that it be discontinued when you refinance. (Have it discontinued even if you aren't refinancing and save money.)

Tip 3:  Refinance your mortgage to build equity quicker

You do not necessarily have to refinance just to lower your monthly payments.  If your finances are in order and you can afford a monthly payment increase of less than $100, why not refinance at a lower rate and for a shorter term, meaning, obtain a 15 year loan instead of a 30 year one?  If the interest rate on your existing loan is two or more points higher than the rate you could qualify for, then you could obtain a shorter term loan without your monthly payments increasing significantly.  Paying off your loan earlier will not only save you thousands in interest charges, but will build equity in your home much faster. For example, one could refinance a $80,000 mortgage from a 30 year 9% loan to a 15 year 7% loan and save $102,300 in interest charges.  In addition, you could own your own your home free and clear in about half the time as before!

Tip 4:  Refinance to start a savings account

While obtaining a 15 year mortgage will result in paying less in interest and build equity faster (see tip 3), some people might be better off obtaining another 30 year mortgage at a lower rate to lower their monthly payments.  The extra money now available each month could be used to  fund a college or retirement account, start a business or make investments, and due to the magic of compound interest, many people might be better off financially in the long term.  For example, as stated in tip three, one could refinance a $80,000 mortgage from a 30 year 9% loan to a 15 year 7% loan and save $102,300.00 in interest charges.  On the other hand, one could refinance a $80,000, 30 year, 9% mortgage to another 30 year, 7% loan and save $112 each month which could be invested in some manner to save for retirement.  For example, investing $112 in a tax-free retirement fund averaging a 10% return would be valued at about $247,000 in thirty years.

Tip 5:  Don't Fall for "No Cost Refinance" Scam

Lenders lure people in with the promise of a no cost refinance, but the truth is that the costs are just tacked on to the loan in the form of a higher interest rate on the loan.  And make sure that you get a fixed rate loan, not a variable rate loan.

Use our mortgage refinance calculator to determine if refinancing your mortgage is your best option.

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