Refinance Your House Mortgage - Different Types of Closing Costs

Refinancing a home loan can be a lengthy process that entails many fees. Closing costs are unavoidable. Homeowners have the option of paying these fees out-of-pocket, or financing the fees into the mortgage. The latter options will increase the principle balance of the mortgage by a few thousand dollars. Before applying for a mortgage or refinancing, it is important to understanding the two types of closing costs: recurring and non-recurring costs.

What are Closing Costs?

When applying for a refinancing loan, many steps must be fulfilled before the loan is finalized at closing. Unfortunately, these steps involve fees. Unless otherwise negotiated, the homebuyer is responsible for these costs. Closing costs vary from loan-to-loan. In a housing market where properties are selling very quickly, homebuyers should be prepared to pay 3 to 5 percent of the home price. As the housing market cools, it may be possible to arrange for the seller to pay closing costs.

What are Non-recurring and Recurring Closing Fees?

There are two main types of closing fees. If using a mortgage broker, they will likely explain the different fees. When refinancing a home, most fees are one-time and paid at closing. These include the discount and origination points, application fees, appraisal fees, title search, credit report, etc.

Recurring closing fees are also due at closing. However, homebuyers are also required to pay these fees annually. Typical recurring fees include interest, property taxes, and a variety of insurances. Homeowners may choose to prepay recurring closing costs each year, or have the premiums included in the new mortgage payment.

What to Expect at Closing

To avoid unexpected charges, homeowners are informed of estimated closing costs before finalizing the mortgage loan. When requesting a mortgage quote, potential lenders remit quotes with estimated fees. Thus, there are no surprises.

Lenders charge different fees. With this said, it is essential to obtain Good Faith Estimates from at least three lenders. By doing so, homeowners may pay less at closing.

Getting a mortgage quote is simple. Mortgage brokers can link homebuyers will several types of lenders, offering a range of loans for all credit types and incomes.