Refinancing a mortgage can feel daunting with all the paperwork and many different loan options to choose from. But, I'm a big fan of refinancing when the numbers make sense. I've saved a lot of money on interest without paying too much in mortgage refinance fees thanks to refinancing at optimal times.
I originally wrote this post right after I finished refinancing my primary residence mortgage in early 2020. It took four months, but I'm extremely thankful I got it done. The time, hassle, and savings were well worth it.
My new loan is a 7/1 ARM at 2.625%. The loan amount is $700,711 and the new monthly payment is $2,814.41. Not only did this mortgage refinance cost me nothing, I was paid a $220 credit. That's right. The bank paid me to refinance with them!
In this article, I want to highlight all the mortgage finance fees and show which finance fees could be negotiated. If you want to refinance, check mortgage rates online now and see what rates you can qualify for from top lenders all in one place. When banks compete for your business, you can benefit from lower rates.
All The Mortgage Refinance Fees
Below is my mortgage refinance closing statement. All the fees are under the DEBITS column. The CREDIT column is either the Lender Credit to may for my no-cost refinance or a check I wrote at closing.
New Loan Charges
New loan charges are also called loan origination charges. These are charges made by the lender you plan to refinance with. In this case, the lender is Wells Fargo.
Processing fee: This is an unavoidable fee to pay someone to process your loan.
Relock at Market Rate: This fee is a rate extension fee. When you refinance, you will initially lock on a certain rate. After a particular period of time is over, usually 45 – 60 days, if the loan is not completed by then, the lender will file an extension. Unfortunately, you end up paying the fee for the bank's own inefficiency.
Tax Service: It's hard to tell what tax is being paid for. But as we all know in life, taxes are unavoidable.
Rate Lock Extension: Because my mortgage took four months and one week to complete, Wells Fargo had to file another rate lock extension. Be aware that lenders could take much longer to refinance than they initial guide.
Appraisal Fee: A lender usually hires an independent appraiser to verify the value of your home. Nowadays, a qualified applicant needs to have at least 20% equity in their home. In other words, if you want to refinance $800,000, your house best be worth at least $1,000,000. Appraisal fees generally range from $600 – $800.
Credit Report Fee: This fee is sometimes not covered directly by the lender during a no-cost refinance. I had to pay for my credit report fee up front. If I decided not to go with Wells Fargo to refinance my primary mortgage, I would have to eat the cost. Pulling your credit is a must to get a loan.
Prepaid Interest: Prepaid interest is not an extra expense. It is the mortgage interest expense you would have paid anyway had you not refinanced your mortgage. Given a mortgage refinance can take anywhere from 1 – 4 months, you need to pay the mortgage interest owed to the original lender before closing.
Title & Escrow Charges
Every mortgage refinance goes through a title company to make sure everything is legitimate. The Title company protects the seller of the property and the buyer of the property. As funds deposited and released in multiple stages during the closing process.
Title – Escrow Fee: The fee you pay your title company for opening up the escrow account. The title company keeps track of the various stages of the transaction, ensures both sides abide by the contract, holds the money, and releases the money once conditions are met.
Title – Lender's Title Insurance: The lender and ultimately you pay for title insurance. Title insurance is to ensure that you get a clean title upon purchase and that there are no liens or other owners against your property.
Title – Mobile Signing Fee: Mobile notary who comes to your house, office, or wherever you want to meet to sign the final documents. The notary will take your thumb print and sign a book that verifies s/he saw you sign all the required documents. You will be sent a final refinance statement within a couple days of closing.
Title – Recording Service Fee: This fee is to record the official owner and lender in the city records.
Government Charges
Recording Fees – The government charges your title company a fee to have an official record of your homeownership and lender in the city records.
Payoffs
Payoff of First Mortgage – Principal Balance – This is the balance of the first mortgage you plan to refinance.
Additional Interest – This is the mortgage interest owed based off your first mortgage's interest rate. The additional interest is usually due to a mortgage rate extension. A mortgage is paid in arrears e.g. Feb 1 payment is for January mortgage.
Demand Fee – A random fee that has no purpose
Recording Fee – The borrower's portion of the city recording fee.
Miscellaneous Fees
Homeowner's Insurance Premium – The refinancer must pay the full year's hownerhomer's insurance premium in order to successfully complete their refinance.
Side note – here's an important article I wrote that you should read before you refinance: Why It’s Better To Pay A Small Mortgage Fee Than Get A Large Credit.
Which Mortgage Refinance Fees Are Negotiable?
With so many mortgage fees, you should be wondering which mortgage refinance fees are negotiable.
Here they are:
- Rate Lock Extension fee
- Mobile Signing Fee
- Appraisal Fee
- Credit Report Fee
- Relock At Market Rate Fee
- Demand Fee
- Recording Fee
The Title & Escrow fees are largely not negotiable because these are fees charged by the title & escrow company. However, if you are buying a property, you can negotiate which title & escrow company to go with. And if you decide to go with a different title & escrow company the seller wants, their title & escrow company might willing to cut their fees for you to go with them.
The Rate Lock Extension fee should not be born by the borrower if the bank's underwriting department is backed up. An extension is the bank's own fault. Don't feel bad either. If a rate lock extension fee is assessed, it means the bank's business is booming and they should cover it through a Lender Credit.
The Mobile Signing Fee can be eliminated if you go to the title company's office. However, you will obviously have to bear your own transportation fee.
The Appraisal fee can sometimes by negotiated down or skipped if you've had an appraisal done within the past 6 – 12 months.
The Credit Report fee is something that can absolutely be negotiated if the lender really wants your business. I've always had the bank cover this fee.
The Demand fee and Recording fee are not huge fees. Therefore, the bank may have more leeway to cover them through a Lender Credit.
You'll notice on the Final Refinance Statement that there's a Lenders Credit of $6,131.22. That credit covers all my fees plus gives me a $220 balance due.
The larger the mortgage you refinance, the more wiggle room the lender has to cover your fees because the larger a profit they can make on your mortgage. If my mortgage refinance was only $150,000 instead of $700,000+, there's no way I would have been able to get a $6,131.22 lender credit.
Final Credit Is Not A Credit
You'll also notice a final credit at the very bottom for $5,111.17. That was a check I had to come up with at closing to pay for a year's worth of homeowner's insurance premiums and interest owed at my old rate of 4.5%.
In other words, the $5,111.17 check I wrote is money I owed anyway. I had previously elected to pay my annual homeowner's insurance premium in monthly installments at no extra charge. But in order to refinance, the law requires the annual homeowner's insurance premium to be paid in full.
But the bottom line for mortgage refinance fees is that everything is negotiable. You will never know until you ask.
Related: No-Cost Refinance Loan: There’s Really No Such Thing
When To Refinance Your Mortgage
I recommend refinancing if you can save at least 0.25% on interest and break even within 12-18 months. If you go the no-cost refinance route like I did, then your breakeven is immediate, even if the interest rate is slightly higher. Boosting your cash flow is a no-brainer.
Check out the latest highly competitive mortgage rates online today. You can get free, real refinance quotes in one place from multiple qualified private lenders competing for your business. Thanks to technology, it's so easy to compare mortgage rates today. You can get multiple real quotes in under three minutes.
You should also consider investing in real estate through a publicly traded REIT and through real estate crowdfunding. Real estate crowdfunding is great because the sponsors and real estate deals are pre-vetted and the potential income and returns are passive. With the stock market up and mortgage rates down, money will be shifting towards real estate in the new decade.
Explore Real Estate Crowdfunding
If you haven't heard of online real estate, please check out my Real Estate Crowdfunding Learning Center. There's a wealth of free information there that I've put together from firsthand experience.
The best two real estate platforms for investors are:
Fundrise: Washington D.C.-based Fundrise was founded in 2012 and is the most innovative real estate crowdfunding platforms for non-accredited investors. They are pioneers of the eREIT and have launched an Opportunity Fund to take advantage of new tax rules.
CrowdStreet: Portland-based CrowdStreet was founded in 2014 and focus their deals in 18-hour cities, secondary cities which are cheaper and may have higher growth potential. CrowdStreet is mainly for accredited investors who are looking for ways to tap the mid-market, heartland of America real estate opportunities.
To build wealth in real estate, you must not only minimize the cost of ownership, you should also maximize your returns. Over the long run, chances are high you will do very well.