I hear a lot of talk about refinancing lately. I think it’s because although rates are relatively down right now, a lot of people think they’re going to be on their way up soon. The Federal Reserve is printing money and putting it into circulation. An increased money supply, in theory, will create a risk of inflation. When the money supply increases, the thought is that people will spend more money and bid up the cost of goods and market prices. Scarcity gives money value, and as money becomes less scarce, it has less value. This, of course, is all in theory. Right now, inflation isn’t occurring at the rate that everyone fears, because even though the money supply is being increased, we have a generation of people that are all simultaneously tightening their belts. Blatant rampant consumerism is no longer en vogue. It’s been replaced – frugality is the new hip thing.
If you read this site with any regularity, you know that my wife and I are in the process of buying a multi-family piece of real estate and selling our condo. It’s been a rush of mortgages, titles, negotiations and closing costs. To be honest, it’s been fun in a lot of ways. What won’t be fun, however, will be paying all the closing costs on our loan. When we were shopping for lenders, I would always ask for what I referred to as a “term sheet.” Lenders prefer to call this a “good faith estimate.” To me, if you’re making a deal about something, it’s a term sheet. But I digress.
The truth about closing costs is they can be fairly substantial. Real estate has generated a tremendous number of jobs. Mortgage brokers, real estate brokers and agents, title companies and appraisers all make their living off of these transactions. They all chip away at the transaction. Everyone gets their piece. Many of those pieces are negotiable.
Here are some of the costs typically associated with the loan and closing: loan origination, title insurance, escrow fee, application fee, appraisal. Other fees may apply as well. Here’s an example of what we’re paying.
Credit Report – $50
Processing Fee – $60
Underwriting Fee – $435
Wire Transfer Fee – $25
Escrow Fee – $150
Title Insurance – $800
Courier Fee – $60
CPL – $25
Wire Fee – $25
File Retention Fee – $8
Recording Fee – $120
We’re at $1,758 already, and we haven’t even gotten into insurance, taxes, or page any of the mortgage or interest. We’re giving a lot of people a living by buying houses. It’s easy to see, when you think about how many people are employed by this industry, and we haven’t even mentioned people who work in home improvement or building industries.
If you’re thinking about refinancing, consider checking out this handy dandy refinance calculator. The key is seeing how long it will take you to recoup the money it would cost you to refinance. Then you have to think about whether you think you’ll stay in the home long enough to get that value back. Numbers are the only relevant consideration when it comes to a refinance. A good rule of thumb is that if you can get a whole percentage point difference in your interest rate, it’s a good idea to refinance. That being said, you still have to compare the dollars saved by refinancing to the amount you’ll pay to do so. Keep that in mind. Good luck, and thanks for reading.
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