Beware The Hidden Costs of Refinancing

With so many homeowners refinancing, it is tempting to jump on the bandwagon, especially with the current low interest rates and appealing offers that are popping up all over the place. While in many situations refinancing can be a wise choice, it is important to note that it is not without its own costs.
Some refinance companies charge an application fee to begin the application and refinance process. This is an upfront cost that is never rolled into the new loan amount and must come out of your personal funds. There are lenders who do not charge application fees, and some of the lenders who do often run promotions where the application fee is waived.
You might remember when you bought your home and took out your mortgage, there were costs and fees involved that you had to pay. When you refinance, those same fees and costs must be paid all over again, though they can sometimes be rolled into the new mortgage. If you don't think that you are paying for things like settlement costs and points, think again.
Even if you don't have to bring cash to closing, the lender has probably added these costs into the term of your loan. Be sure to check and see exactly how much they are charging you and how much money for these expenses is being rolled into your new mortgage balance. To have a lower monthly payment, you are going to wind up paying more points. To pay lower points you are going to need to make a higher monthly payment.
Another possible cost that you have to be aware of when you are considering refinancing is whether or not you have an early payoff penalty on your current mortgage. Sometimes these fees can be steep, making it pointless to refinance if the fees exceed the amount you will be saving by refinancing in the first place.
While there are costs involved with refinancing, in the majority of cases, it still pays off in the long run. Refinancing can save a homeowner tens of thousands of dollars - a rather large sum compared to the amount spent on refinancing.
Written by Glen Hooke

About the Author
Glen Hooke is a financial analyst and broker specializing in mortgage reduction strategies.
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