You’ve got your eye on a refinance, and that’s smart! Just like when you bought your home, refinancing isn’t free. There are certain costs that get incurred, often called “closing costs,” that either you or the lender, or ca combination of both, will need to pay. Don’t worry, though – understanding these costs upfront helps you plan and avoid surprises.

For homeowners in Michigan, these closing costs typically add up to around 2% to 4% of your new loan amount. So, if you’re refinancing a $200,000 mortgage, you might see costs between $4,000 and $8,000. It’s a range because it depends on your specific loan, how much you are borrowing and whether you would like an escrow account for property taxes and homeowners’ insurance or not.

Let’s break down some of the most common fees you might see when refinancing in Michigan:

Common Refinance Costs to Expect:

1. Lender Fees:
   • Loan Origination Fee: This is what the lender charges to set up your new loan. It often covers their work in origination, underwriting, and closing your application. This fee is usually around 0.5% to 1% of your loan amount. So, on a $200,000 loan, that’s $1,000 to $2,000.
   • Application Fee: Some lenders charge a small fee just to process your application. This can be anywhere from $75 to $500. Some lenders might even waive this!
   • Underwriting Fee: Some lenders charge a separate underwriting fee, not covered in the origination fees. This covers the lender’s cost to check your loan application and make sure everything is good to go. This can be a few hundred dollars, often from $300 to $900.
   • Discount Points (Optional): This is a fee you choose to pay to get a lower interest rate. One “point” equals 1% of your loan amount and usually equates to a discount of .25% on the rate. So, on a $200,000 loan, one point is $2,000 and will discount the rate .25% lower than the market rate. Paying points can save you money on interest over the long run, but it adds to your upfront costs, calculating the breakeven point is paramount when considering paying points.
2. Third-Party Fees (Paid to Other Companies):
   • Appraisal Fee: A licensed appraiser will visit your Michigan home to take measurements and photos. They then take the data from your home and compare it to similar homes that have recently sold to determine their estimate of your home’s value. This is important because the lender needs to know the home’s value. Appraisal fees in Michigan typically range from $500 to $700 but can sometimes be more for larger or unique properties. There is also a possibility that an appraisal will not be needed at all. In the mortgage industry, this is called a property inspection waiver or (PIW). How is it determined if an appraisal is needed or not? There is no specific formula, it is based on the totality of the borrower’s application, however, believe it or not how recently the last appraisal was done on the home is a big factor. The more recent data Fannie Mae and/or Freddie Mac has on the homes value improves the chances of getting a PIW when refinancing.
   • Title Search & Title Insurance: Just like when you first bought your home, a title company needs to check the history of your property to make sure there are no hidden claims or debts (like old unpaid taxes or liens) on it. Title insurance protects both you (owner’s policy) and the lender (lender’s policy) in case something unexpected shows up later. In Michigan, title insurance costs are often 0.25% to .50% of the loan amount, plus fees for the search and settlement services, which can range from $200 to $500 in total for the closing process.
   • Recording Fees: This is a small fee paid to your local county government in Michigan to officially record your new mortgage in public records. This is usually $25 to $125, depending on your county.
   • Credit Report Fee: Covers the cost of pulling your credit history and score. This is usually a small fee, often $30 to $80.
   • Attorney Fees (If Applicable): In Michigan, it’s not always required to have an attorney for a refinance closing, but you might choose to. Attorney fees can range from $500 to $1,000 or more.
3. Prepaid & Escrow Items:
   • Prepaid Interest: You’ll usually pay interest on your new loan from the day your refinance disburses until the end of that month.
   • Escrow Account Funds: Your lender might require you or you may desire to set up an escrow account to hold money for your property taxes and homeowner’s insurance. You’ll put in a few months’ worth of these payments at closing, and then a smaller amount will be collected with your monthly mortgage payment. This isn’t a “fee” you lose, but money set aside for future bills.

Can You Reduce Refinancing Costs in Michigan?

Sometimes, yes!

• Shop Around: Get quotes from different lenders. Fees can vary, so comparing offers is smart. It’s a good idea to speak with a few lenders regarding their rates and fees but be sure to use the same parameters when comparing.
• Negotiate: Some fees, especially lender fees, might be negotiable. You can never get a yes if you don’t ask!
• “No-Closing-Cost” Refinance: As you can see, closing costs are real and if the borrower is not paying them, the lender is. However, lenders usually make up for it by giving you a slightly higher interest rate. This might make sense if you plan to move soon, but over a longer time, it might cost you more. You’re not avoiding the costs; you’re just paying them in a different way. In a declining interest rate market, it may make sense to consider a no-cost refinance. You can take the savings today for no-cost and when rates drop to a level that is considerably lower, you can refinance again and then pay the closing costs to get the lowest rate possible at the time.
• Borrower Beware: Rolling in your closing costs/pre-paid expenses into your new loan is a common thing to do when refinancing, but remember this increases what you will owe, and a no out-of-pocket refinance is much different than a true no-cost refinance.

Understanding these costs is a big part of deciding if refinancing is right for your Michigan home. It’s about weighing the upfront costs against the long-term savings or benefits you’ll gain.

Ready to get a clear picture of your refinance costs? Don’t let confusing numbers stop you from potentially saving money or reaching your home goals. As an experienced mortgage lender and CDLP, I can help you understand every fee and break down the numbers for your specific situation here in Michigan. Contact me today for a personalized estimate of your refinance closing costs and to see how much you could save!