The Hidden Costs

With interest rates as low as they are, a lot of people are thinking about refinancing their mortgages. Depending on your financial circumstances, you may be able significantly decrease your mortgage payments by refinancing. But before you rush out to sign the papers, consider all of the possible costs that can make refinancing less of a sweet deal.

Most people don't think about whether refinancing is truly right for them. If you've bought your home quite recently, a large chunk of your house payment goes to pay the interest rate. Switching to a slightly lower interest rate can save you a lot of money. However, if you're at the end of your mortgage term, a lower rate won't make a big difference to your monthly payments as at the end of your mortgage term you are paying less interest and more principal.

If you're struggling with your current mortgage payments, you may think that refinancing will ease the financial burden. This may not be the case. To save money, you'll need to get a new mortgage at a good rate. If you're struggling, your credit score may be too low to qualify for the best loan offers.

There are many fees associated with refinancing. You will need to pay broker or lender fees for preparing the necessary documents and processing your application. There are also third-party fees for things like appraisals and title searches. Your new creditor will want to know what your house is worth. There are also non-negotiable government fees for things like recording the deed.

It's not possible to avoid all of these fees, but you can reduce some of them. Shop around before you decide on a mortgage broker. Different brokers have different fees. The same is true for inspectors. They are all competing for your business. Go with the one offering the best deal.

Make sure you get a list of all the fees upfront, so there'll be no surprises. That way you can take them into account when deciding if refinancing is right for you.