How to Refinance With Closing Fees

Crunch your numbers to see if refinancing makes sense for you.
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Sometimes it pays to tweak your home mortgage, sweetening your deal to save some money. There are lots of different reasons to refinance – lower interest rates, greater mortgage stability or cashing out the equity, to name a few. Don’t go into a refi blind, though, because it usually costs you something. When you refinance with closing fees, weigh all the costs to make sure you will save money over the course of the loan.

Step 1

Check your equity, which is the percentage of your mortgage that you’ve already paid off. Call your lender for help with this or do the math yourself. Start with the estimated value of your home (from a recent appraisal) and subtract the amount you still owe on the mortgage. The difference is your equity. The percentage of equity you have in your home can determine some refinance fees.

Step 2

Examine your current debt-to-income ratio. Check your current income and add up all your monthly debt payments. Calculate the percentage of your income that must service debt. As a general rule, this ratio should not exceed 36 percent.

Step 3

Shop around for a new mortgage. Start with your current lender to see what terms and rates you can negotiate with him. Then check with other local lenders advertising in the newspaper or on the Internet. Inquire about points, closing fees, appraisal fees, loan terms and interest rates to compare loans. Get all loan terms from each lender in writing so you can compare the offers carefully.

Step 4

Crunch the numbers to calculate your savings. Use a refinance calculator to enter your current mortgage payment and interest rate, your balance left ,and the years left on your loan. Enter the new interest rate and new loan term for each mortgage you are considering, along with any fees and other costs associated with the loan, and then calculate the overall cost. Note the results for each mortgage to help you determine which mortgage is the most economical choice over the entire term of the loan.

Step 5

Submit an application for the loan of your choice. Include copies of supporting documents to prove your income, such as W-2s and your most recent income tax return. Wait for results of your application. The processing period involves checking your credit and verifying the information on your application. Once the lender finishes processing your application, the underwriting phase begins. This involves checking your current loan data, appraising your home’s worth and verifying that your income and your credit worthiness will support a new mortgage. As long as the lender approves everything, underwriting concludes with approval of the loan.

Step 6

Close on the new mortgage. You will be able to examine all the terms and fees associated with the refinance before you sign the papers. Any closing fees will be due at the closing.

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