mortgage refinanceA Mortgage Refinance involves origination fees and points. The origination fee is charged by the lender for preparing the mortgage refinance loan. Points are finance charges imposed by the lender in addition to the stated interest rate on the refinancing note. One point equals one percent of the loan amount.

Mortgage refinance can be worthwhile, but it does not make good sense for everyone. A general role of thumb is that a home refinance becomes worth your while if the current interest rate on your mortgage is at least 2 percentage points higher than the prevailing market rate.

Be aware of the costs associated with getting out of your current home loan and entering into a mortgage refinance. These costs include penalties for breaking out of your current residential loan, origination fees, credit reports and legal fees, and if required, private mortgage insurance and extra life insurance premiums. Only when you have all the costs associated with refinancing your mortgage and the monthly payment savings will you know whether it’s worth your while to go ahead with the new home mortgage loan.

Homeowners should expect to pay an average of 3% to 6% of the outstanding principal in refinancing costs, plus prepayment penalties and the costs of paying off a 2nd mortgage if it exists.

One way of saving on some of these costs is to check first with the lender who holds your current mortgage. The lender may agree to waive some of them, especially if the work pertaining to the mortgage closing is current. This could include the fees for the title search, surveys, inspections, and so on.

As long as the interest savings from a lower borrowing rate outweighs the costs, a refinance home mortgage will be to your financial advantage. From one day to the next, lenders and brokers offer different prices for the same terms to different customers, even if those customers have the same qualifications. The reason for these differences in price is that lenders and brokers are allowed to pocket some or all of the difference. The difference between the price of mortgages and the higher price that the borrowers agree to pay is called an “overage”. Overages can occur in both variable-rate and fixed rate loans and can be in the form of interest rate, points, or fees. The price you will be quoted by the loan officer or broker most likely contains overages.

Always negotiate with several lenders. Make the brokers and lenders compete for your business by informing them that you’re shopping for the best deal. Ask each mortgage refinance lender to lower the interest rate, points, or fees. And challenge each lender to meet — or beat — the terms of the others.

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