The costs of refinancing

People usually refinance loans to save money. Sometimes, for whatever reason, a homeowner can save more money by refinancing than by paying down the original mortgage. Still, there are many costs associated with refinancing. Some of these costs may not be immediately obvious, so it might be a good idea to get professional advice before you jump into something new.

Some costs associated with your refinanced loans will be pretty obvious. First of all, you will be required to pay many of the fees that you paid when you were signing your first mortgage. Many times, you must pay points. Also, you will likely be required to pay fees surrounding the closing costs and the appraisal of your home.

Sometimes, depending on your situation, these fees will be reduced. If you stay with your original lender, they will often waive certain fees or grant some other kind of incentive. Other times, you can request that these costs be bundled into the refinanced loan. For instance, you might choose a slightly higher interest rate over upfront fee payment.

Other costs associated with refinance are less obvious. For instance, refinancing can affect your taxes in myriad ways. Most notably, your lower interest rate will probably result in fewer tax deductions. (Interest is tax deductible.) Remodeling is even more complicated. If you refinance loans to obtain money for remodeling, make sure that your property taxes won’t skyrocket afterward.

Finally, make sure that there isn’t a penalty for refinancing your original mortgage. While savvy borrowers tend to avoid mortgages with prepayment penalties, sometimes people get them inadvertently. A heavy fine may offset the savings you anticipate.