If you have ever applied for a home loan refinance you may remember the sticker shock you received when you got your first look at the TIL (Truth in Lending) statement. There were many fees and charges that you just did not expect such as title, escrow, origination, broker points, underwriting, processing, document preparation, pre-paid finance charges, legal, notary, appraisal, delivery, and many others.
There are some companies that advertise no closing cost loans but these companies are not always truthful in their advertising. You need to check carefully and not fall into their trap. When they advertise loans with no cost of refinancing you need to ask certain questions. What is the rebate that the company is getting from the parent lender or investor? Are they making a yield spread premium on my loan, and if so, how much? A yield spread premium is a fee or rebate that the broker gets from the investor or lender by charging a higher interest rate than they get on a wholesale basis. The broker has to let you know in the TIL if they are getting a fee and it is usually marked under broker points, or fees. There are several loopholes however that allow the broker to not disclose this so you need to ask point blank. It is preferable to pay a lower interest rate and pay an origination point now than to get hit with the higher payment every month for thirty years. You can also deduct a portion of the cost of refinancing fees that you pay on your income tax.
Processing fees are usually around four hundred dollars and underwriting fees are usually around six hundred, but they can vary wildly. These fees can be removed by the broker and are just a way for the broker to make more money. There should never be an application fee. There is really no way around third party fees such as an appraisal, notary, title, or escrow, but you are allowed to choose these vendors for yourself and you can certainly negotiate with them to get a discount. Like any other business they are in competition with others and with this bad economy, you can easily get them competing against each other for your business. As far as the appraiser is concerned, you can actually pay them directly at the time of the inspection.
Title charges can be high and there are several different types of title fees so you need to be careful and look at these. Same thing applies to escrow. Make sure that the escrow fees are not excessive by shopping around and talking to other real estate professionals or just call different title and escrow companies.
Some fees cannot be changed and these are the pre-paid items such as property taxes and pre-paid interest. You can however pay these out of your own pocket if you want.
The point is, there are lots of hidden costs of refinancing, but if you keep your eyes open and take nothing for granted, you can get a lot of discounts and save yourself quite a bit of money.