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Understand
the
Process
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Refinancing - What is the Refinance Process?
When you refinance, you pay off an existing mortgage
and take out a new one. An important factor in deciding if you should
refinance your mortgage is understanding just what’s involved
in the process, the costs and fees you’ll have to pay, and
how long it will take you to recover those costs. When you refinance,
you will normally repeat many of the same steps, provide the same
information, and encounter the same types of costs that were involved
the first time around. See the Mortgage
Loan Interview Application Checklist.
How
the Lender Views Your Application
The lender’s decision whether to approve your loan application
will again be determined by an evaluation of the following.
Capacity
Do you have enough income to repay the debt?
Credit
History
Will you repay the debt? This assessment will be based on how much
you owe, how much you borrow, whether you pay your bills on time,
and whether you live within your means.
Capital
What are your assets, including the equity in your home?
Collateral
Based on current market conditions, how much is your home worth?
Will the lender be protected if you fail to repay the loan?
Costs
Involved in Refinancing
Because you are applying for a new loan, you may have to pay many
of the same fees associated with the original purchase of your home,
including an application fee; title
search and title
insurance fees; the cost of an appraisal;
a loan origination
fee; and any
discount points, prepayment penalties, and any legal
service fees relating to your loan.
Sometimes, a new appraisal will not be necessary.
In addition, some of the fees and closing
costs may be waived. If you decide to refinance with your
original lender, you may be able to negotiate a reduction of points
or a waiver of the title search, application, credit check, or other
fees. Even if you select a new mortgage lender, the new lender may
be willing to negotiate these fees as well. Some lenders offer “no-cost”
refinancing, which means that you do not have to pay most of the
fees generally required; however, lenders generally will charge
a higher interest rate for this type of loan. Be sure to ask the
lenders you contact if they offer “no-cost” refinancing
or if some, or all, of the refinancing fees and costs can be waived.
Application Fee
This fee covers the lender’s cost of processing your loan request.
Appraisal Fee
This fee pays for a professional appraiser to estimate the market
value of the property. The appraiser looks at what the home is worth
today and how the neighborhood may affect future property value.
Credit Report
The lender orders a credit report on you and any co-borrowers to
verify the information you've already supplied on your loan application
and to see how you've handled past debt and credit accounts.
Discount Points
Discount points represent the additional money you can pay to the
lender at closing.
In return, the lender will provide you with a lower interest rate
on your loan. Each point equals 1 percent of the loan amount.
Legal Service Fees
The lender usually will charge you for fees paid to the attorney
or company that conducts the closing. You may also want to hire
your own attorney to review documents and represent you throughout
all stages of the transaction.
Loan Origination
Fee
This fee covers the lender's work in evaluating and processing the
loan. It usually is expressed as a percentage of the loan.
Miscellaneous
Fees
Depending upon the type of loan you have and other factors, additional
expenses you might face include the fee for a
Department
of Veterans Affairs (VA) loan guarantee,
Federal
Housing Administration (FHA) mortgage insurance, or
private
mortgage insurance (MI).
Prepayment Penalty
Your existing mortgage may have a
prepayment
penalty clause. This means that if you pay off your existing
mortgage earlier than the terms stated in the contract, you may
be required to pay an additional amount, usually a percentage of
the outstanding principal,
as a penalty. Laws in many states prohibit or limit mortgage prepayment
penalties. Check your mortgage documents or ask your lender if your
mortgage contains a prepayment penalty and if a prepayment penalty
can be enforced in your state.
Survey
The lender may order a new survey of
your property to ensure that nothing has changed about the land
and physical structures that would affect a future sale. Surveys
are not normally required for California properties.
Title Search
and Title Insurance
This charge will cover the cost of examining the public record
to confirm your ownership of the property. It also covers the cost
of a title insurance
policy, which insures the lender in a specific amount for any loss
caused by a discrepancy in the title to the
property. An owner’s title policy protects your ownership interest
in the property. You should ask the company carrying your present
title insurance policy if it can reissue it at a reissue rate, which
may save you money.
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