When you refinance your mortgage, you replace your current mortgage with a new mortgage that has different and, theoretically, better terms. Often, refinancing your mortgage is intended to help you save money in the long run. You might want to refinance your mortgage to get a lower rate or monthly payments or if you want to save on interest over the life of your loan.
Similarly, if you want to consolidate your debt, are thinking about converting your adjustable-rate mortgage to a fixed-rate loan, or are planning on remodeling your home, refinancing your mortgage may be a good choice. But you might be wondering, do I need cash to refinance my mortgage?
The simple answer is, yes, as with any loan, refinancing usually has closing costs and other fees. But mortgage refinancing isn’t one-size-fits-all. Every lending institution and personal financial situation is a little different, and you might have some options. In this article, we’ll take a look at the cash you may (or may not) need to refinance your mortgage.
Do I Need Cash to Refinance My Mortgage?
Typically, the cost to refinance a mortgage will range from 2 to 6 percent of your loan amount, and yes, you will need enough cash to cover the closing costs of refinancing. Unless you go the no-closing-cost route, both traditional refinancing and cash-out refinancing require cash for closing costs up front.
The closing costs associated with refinancing a mortgage cover the expenses for your lender and the services they render. Traditional refinancing comes with a variety of fees.
Fees you can anticipate with traditional refinancing:
- Application fee – $75 to $100
- Origination fee – up to 1% of your loan amount
- Credit report fee – $10 to $100
- Document preparation fee – $50 to $600
- Home appraisal – $225 to $700
- Home inspection – $300 to $500
- Flood certification fee – $15 to $25
- Title search and insurance fee – $400 to $900
- Recording fee – $25 to $250
- Reconveyance fee – $50 to $65
- Mortgage insurance
- With a conventional loan – 0.15% to 1.95% of the loan amount
- With an FHA loan – 1.75% up-front premium and 0.45% to 1.05% of the loan amount annually
- With a VA loan – 0.5% to 3.6% for up-front VA funding fee
- With a USDA loan – 1% up-front guarantee fee and 0.35% annual guarantee fee
Let’s Talk Lenders
While closing costs for a mortgage refinance are something borrowers should plan to cover, you have some flexibility when it comes to the overall amount you pay. For one, you can choose your lender. As you likely did when you first applied for your mortgage, do some shopping around. You don’t have to refinance with the same lender you currently work with. Compare fees and interest rates, and find an option that works best for you.
Be sure to include credit unions in your search. Because of their not-for-profit status, they tend to charge lower fees for home loans and refinancing. They may even charge a simple flat fee rather than the traditional percentage of the loan amount, as Solarity Credit Union does. This can make planning for the cash necessary to refinance even easier.
If you asked, “Do I need cash to refinance my mortgage?” and were hoping the answer was no, then a no-closing-cost refinance may be for you. It’s almost exactly what its name implies. When you choose to do a no-closing-cost refinance, you don’t have to pay closing costs up front to get a new loan. Rather than paying the costs right away, the closing costs are either shifted into your loan or they are waived and replaced by a higher interest rate.
If you plan to stay in your home for less than five years, a no-closing-cost refinance may be a good option for you. You will avoid paying the closing costs directly and will be able to sell your home before you pay too much in interest.
Contrarily, if you’re planning on living out the rest of your life in your home, a no-closing-cost refinance may not be the best fit for you because you will have taken on that higher interest rate. Talk to your lender about your options. Some lenders, such as Solarity Credit Union, even offer no-closing-cost express refinancing, with a streamlined appraisal process and closing being completed in 14 to 21 days. You can refinance up to 80 percent of your home’s value for a low, fixed rate, and there are no lender fees.
Is Refinancing Right for You?
Refinancing your mortgage is a big financial decision, especially since there can be some big up-front costs associated with it. It’s not the right decision for every homeowner. To ensure refinancing is an appropriate move for you, it’s a good idea to calculate your break-even point to determine how many months you will need to stay in your home to recover from the costs of the refinance.
Simply calculate your estimated monthly savings with a refinancing calculator, then you can find the break-even point by dividing the total refinance closing costs by your estimated monthly savings. Typically, you will have to live in your home for at least another year after refinancing to make it worth it.
Refinancing can be a great step to help you save money, lower your payments, or bring in some extra cash for big purchases. Whether you have the cash up front and choose to go with the traditional or cash-out route or if you decide that a no-closing-cost refinance is the best fit for you, Solarity is prepared to help you with all of your home loan needs. Their home loans are fast, easy, and affordable. Plus, their expert Home Loan Guides are always ready to provide financial support and guidance as you navigate the refinancing process. Apply for a refinance or get a personalized rate quote today.