It’s important to understand the costs and fees you’ll have to pay for refinancing and how long it will take you to recover those costs.
Closing costs on a refinance generally range from 3% to 5% of your loan amount. The amount will vary depending on such things as the number of points you pay, the closing agent that you use, and the amount to be deposited into an escrow account.
Because you’re applying for a new loan, you may have to pay many of the same fees associated with the original purchase of your home, including:
- Application fee — A fee to help cover the operational costs of processing the information on your loan.
- Origination fee — A fee to help cover the cost of evaluating, preparing, and submitting a proposed mortgage loan. It may be expressed as a percentage of the loan. You may choose a higher interest rate and not pay an origination fee.
- Appraisal fee — A fee for an independent written opinion that identifies the property's market value.
- Credit report — A document summarizing your history of repaying debts. A credit report is required for all mortgage loans.
- Title search and insurance — covers the cost of examining the public record to confirm your ownership of the property and provides insurance to lenders of real estate that you have clear title to the property.
- Legal fees — Fees paid to the attorney or company that conducts the closing.
- Prepayment penalties — This means that if you pay off your existing mortgage earlier than the terms stated in the contract, you may be required to pay an additional amount. Check your mortgage documents to see if your mortgage contains a prepayment penalty.
Financing closing costs
You can often finance some or all of your closing costs by adding them to the loan amount. It usually depends on how much equity you’ve built up in the property. This is called a No Cash Out Refinance.
While doing this reduces your out of pocket expenses at closing, it could reduce the benefits of refinancing because you’ll pay interest on your closing costs for the life of the loan.
Accessing your equity
You may want to use some of the equity in your home to turn into cash or to pay off debts. This is referred to as a Cash Out Refinance. In many cases it’s limited to 75% of the appraised value, but for certain loan types you may be able to get up to 85% of the value. Generally, Cash Out Refinances higher than 75% of the appraised value have a higher interest rate.
We'll be happy to help you evaluate your options. Please contact Member Services at (804) 323-6800 or (800) 285-6609 if you have any questions or if we can help you in any way.
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