Avoid Extra High Mortgage Financing Costs


While it is true that real estate property buyers and owners looking to refinance their mortgages want to avoid extra high financing costs, the question of how to avoid such costs and what action(s) one must take in order to to so. What costs are considered extra high? And when might a borrower find him/herself in a position to be chartged extra high financing costs in today’s – years AFTER the subprime mortgage era – real estate mortgage market?

You may or may not know that there are ways for you to pay less while you own more, but taking yourself out of a certain high-cost category may be another thing entirely. If you know exactly how to work within the real estate arena, then you can probably find ways to avoid extra financing costs being tacked on to your purchase or refinance mortgage.

For example, if you’re an investor, finding the right area to focus on for your investment can be an important element in paying lower amounts without extra charges. If you’re not an investor but you’re seeking mortgage financing for the first time or you wish to re-mortgage a home you already own, the work you do BEFORE signing a mortgage application will determine what kind of mortgage you obtain and at what costs.

One of the easiest ways to avoid extra costs is to make sure that you make your monthly payments on time. Usually, mortgage companies will add extra charges (late charge penalties) if you don’t pay by the date they have set for you. Over a period of time – if you continue to pay late – this can result in hundreds of extra dollars in extra costs at one time. Staying ahead and consistent will help you to keep costs stable and lower. But this is one of the easily identified extra costs which is similarly easy to avoid paying.

What about other charges you can be hit with? Like pre-payment penalties, discount points, origination fees (which are also considered points by most attorneys), warehousing fees, a higher-than-prevailing interest rate at closing, a longer-than-necessary loan term (30 years when you qualify for 15 years can cost tens of thousands of dollars, if not hundreds of thousands), getting locked (or talked) into a FHA mortgage when a conventional mortgage would be a better, more affordable mortgage loan (FHA rates are usually 1/2 percent higher than conventional and you’ll have to pay the MIP which is non-existent on a 80% LTV conventional mortgage).

So of course, knowing the mortgage financing options that are available to you can certainly help you to avoid extra high financing costs. Some homes will require that you invest more, and some loan programs will also ask that you invest a higher amount out-of-pocket, but this is not necessarily a bad thing. For example, if you are able to make a down paymwent of 20 percent of the home selling price, you immediately eliminate any kind of mortgage insurance (MIP AND PMI), making your monthly payment lower by those amounts.

As long as you put youself in a position to determine the type of financing that would be beneficial to you in the short term, and even more importantly, the long term – which is where many mortgage borrowers fail to spend enough time planning for – the decisions you make will be informed and thus guide your selection of a mortgage loan that will best suit your situation.

Keep in mind that until you commit to a mortgage type, you always have the choice of looking into a different type of mortgage program. The type of program that you decide upon for your mortgages will make a huge difference in how much you pay overall and how much you pay each month.

The finances don’t stand alone when you are trying to avoid extra costs. The value of the property that you are investing in will also make a difference. The goal for any real estate investment is a high quality home for a lower price. You want to get as close to this goal as you can. Even if you pay on the home for a while, it will allow you to benefit later on with the investment that you have made. You will have the ability to have more equity returned to you when you decide to invest in something bigger and better.


Real estate financing can be beneficial if you approach it correctly. Understanding how all the parts of your loan, your home and your individual needs work together can help you to find the best deal. Over time, you will not only have a home to live in, but will also have an investment that can help you to make the most of what you have. That is, of course, if you are buying a home to live in and not one to buy and flip in a short period, in which case your approach to buying real estate has to be totally different although the goal of avoiding extra high costs is the same.

When Is Refinancing Into A New Mortgage Not Advisable?


Many homeowners make the mistake of thinking that refinancing is always a viable option. However, there are times when refinancing into a new mortgage is really not advisable. Homeowners can make a significant financial mistake by refinancing at an inopportune time. There is a couple of classic examples of when refinancing is a mistake.

One occurs when the homeowner does not stay in the property long enough to recoup the cost of refinancing into a new mortgage. The other is when the homeowner has had a credit score dropped since the original mortgage loan. Other examples are when the interest rate has not dropped enough to offset the closing costs associated with the refinance mortgage.

Recouping the closing costs

In determining whether or not it is worthwhile take out a refinance mortgage, you should determine how long you’ll have to maintain ownership of the property in order to recoup the closing costs. This is significant especially in the case of you intending to sell your property in the near future. There are refinancing calculators readily available on the Web which will provide the amount of time you will have to retain the property for making a determination whether it’s worthwhile to get a refinance mortgage.

These calculators require you to input information such as the balance of your existing mortgage, the existing interest rate and the new interest rate, after which the calculator returns results comparing the monthly payments on the old mortgage and the new mortgage as well as information about the amount of time required for you to recoup the closing costs associated with refinancing into a new mortgage.

When credit scores drop

If you believe that a drop in interest rates is a signal for you to immediately refinance into a new lower rate mortgage, you may need to take a step back and examine the circumstance. If the new lower interest rates are combined with a drop in your credit score, the resulting refinanced mortgage may not be favorable to you simply because your current credit scores may not be favorably compared to the credit scores at the time of your original mortgage, then refinancing into the new mortgage may not be to your benefit. However, depending on the amount interest rates have dropped, you will have to take out the calculator again to help you make a good decision.

Have the interest rates dropped enough?

A common mistake many homeowners make in regard to refinancing into a new mortgage is to refinance whenever there is a significant drop in interest rates. This can be a mistake because the homeowner must first carefully evaluate whether or not the interest rate has dropped enough to result in an overall cost savings. Homeowners often make this mistake because they fail to consider the closing costs associated with refinancing the home.

These costs may include application fees, origination fees, appraisal fees and a variety of other closing fees and charges. These costs can add up quite quickly and may eat into the savings generated by the lower interest rate. In some cases the closing costs may even exceed the savings resulting from lower interest rates, so it requires careful thought about refinancing into a new mortgage even when there’s a significant decline in interest rates.

Refinancing into a new mortgage can be beneficial even when it is a “mistake”

In reality, refinancing into a new mortgage is not always advisable, but some homeowners may still opt to refinance even when it’s technically a mistake to do so. This classic example of benefitting under adverse conditions is when a homeowner refinances to gain the benefit of lower interest rates even though s/he winds up paying more in the long term. Under these circumstances, the lower interest rate is not low enough to result in an overall savings, but the homeowner benefits anyway because s/he consolidates a considerable amount of short term debt into a long term refinance mortgage.

Although most financial advisors may warn against this type of financial approach to refinancing into a new mortgage, homeowners sometimes go against conventional wisdom to make a change which may increase their monthly cash flow by reducing their overall debt obligation payments. In this situation the homeowner is making the best possible decision for his/her personal needs.