After all of the expenses of buying a home, many new homeowners are shocked to see how much more they have to pay at the closing. It is important to understand the costs ahead of time, because if you are refinancing to save money on this lower rate, the closing costs may wipe out your savings.
You would expect the lender to charge something for creating a new loan. Needless to say, the bank will not normally absorb these costs, but rather pass them on to the borrowers. (Although, in competitive loan markets, banks have used lower closing costs as a factor to attract new borrowers, by absorbing part of the fees.)
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There may be taxes and other fees by the government as well.
One of the first questions you may ask is whether or not you can reduce these costs. Often banks may make special offers to entice customers to take a loan with them.
One of the first steps you should take is to get a good faith estimate of the closing costs. Examine this carefully and you may be able to find some fees that can be negotiated. Be attentive to a loan package that has a great rate, but is over-stuffed with closing costs. The bank may merely be getting some of the interest back up front.
You can get an estimate from other lenders, and then you will be able to compare the line by line items. If your bank’s charges seem a great deal higher, you should question them. Some fees, such as an appraisal or a credit check, should be fairly similar in the same geographic area. If there are exorbitant charges, ask to negotiate them.
Now that you know how much you will have in closing costs, you have to make sure it is worthwhile to re-negotiate your current mortgage. You can obtain a mortgage calculator on many sites on the net, and it will tell you how much the loan is going to cost over its life.
To the total cost of the new loan, be sure to add the closing costs, since you will not have them if you stay with your present mortgage. Now you can decide if it is worth taking out a new loan on your home.
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