Thinking of refinancing? Let's do the math
Julie Garton-Good, GRI, DREI

Rates are low, and you have some ideas on how you'd love to use some of your equity, so you've been tempted to pick up the phone and get your mortgage refinanced. But what costs are involved in refinancing--which ones are "standard," and which ones are you likely to negotiate?

While fees can vary from loan to loan and from lender to lender, here are some categories of costs you may encounter when refinancing your mortgage:

  1. Application fee:Most lenders charge a fee to cover the processing of your loan. Depending on the lender, this may or may not include the fee for checking your credit. It's tough to find much negotiating room here, since it covers many of the hard costs of processing the loan--but it wouldn't hurt to try.
  2. Appraisal fee:Just as you probably paid for an appraisal when you first obtained the loan, it's once again necessary to establish the property's value to the lender. Most lenders can't or don't negotiate appraisal fees with appraisers.
  3. Title search and title insurance:Public records will need to be searched in order to confirm that you are the owner of the property and/or to discover any potential problems with the title. The title company will perform this service and provide the title insurance required by the lender. There's no room for negotiation on this fee, unless you have owned your property only a short time and a rebate from a previous policy might apply.
  4. Loan origination fees and discount points: Here's where you can sharpen your negotiating pencil. Most owners are amazed to find that they can reduce their closing costs by hundreds of dollars or more in fees/origination costs when obtaining a new loan. (Remember--if you don't ask, you don't get.) Discount points are actually prepaid interest and help increase the loan's financial yield to the lender. So depending on the interest rate you're charged and where the financial markets are at the time, you can often negotiate discount points as well. This is especially true if you're comparing the programs of two lenders, both of which want your business.
  5. Attorney review/closing fees:Depending on where you live and where the lender is located, you may be charged fees to compensate the individual or company that pulls together the closing documents and closes the loan.

One last point. Before you consider refinancing, check your old loan to see if there's a prepayment fee required to pay it off. Depending on the age of your loan and the company who wrote it, you may be looking at as much as one month's payment to retire the loan early. This fee can often be renegotiated or dropped, especially if you agree to refinance the loan with that company. Advance knowledge will help you make cost-effective decisions regarding refinancing.