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I'm about to refinance my home from a 6% 30 year to a roughly 3.5% 15 year. I am going through a local non-bank third party company. He quoted me a fee of 2.5% for the refinance. I haven't refinanced a mortgage in a long time. Is this reasonable (in the United States)? Anything else I should be aware of?

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tl;dr: I think you can find a much better deal.

Doing a strait refi will cost you some amount of money. However, a 2.5% fee ont top of closing costs seems really high. You can get a quote from Quicken loans pretty quick and compare their fee. Also I would check with a local bank, preferably one you already do business with. The 2.5% is probably their commission for originating the loan. If you are in the Southeast I have had great luck with Regions bank. They are large enough, but also small enough. Please know that I have no affiliation with either company.

BTW the rate also seems high. Doing a quick search of Bank Rate, it seems you can get 3.25% with zero fee as of this writing. The worse deal they show is 3.46 with a .75% fee, much better than you were quoted.

If you can afford it I would also encourage you to think outside the box. A client of mine was able to obtain a Home Equity Loan (not line of credit) to replace their mortgage. They went for a 7 year pay off, with the loan in first position, at a rate about .75 below the then current 15 year rate. The key was there was zero closing costs. It saved them quite a bit of money.

Also look at a 10 year fixed. It might not be much more than you are paying now.

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tl;dr: I agree with Pete B.'s assertion that you should continue shopping. That's not the whole story though; there are other factors that can raise your rate, and affect your closing costs.

The published rate is typically the best rate you can get. Here are some other factors that can raise your rate:

  1. What is your credit score? (Obviously the higher the better.)
  2. Is the home your primary residence? If you rent the home it will be considered an investment property and this could raise your rate approximately 0.5-1.0%.
  3. What is your LTV? The lower the percentage the better.
  4. Are you using any special programs such as HARP? The base rate may be higher for certain programs.

You should have received a loan estimate which will itemize the fees you will pay. On that document you will see if you are paying a price to "buy down" the rate, and all the other fees. How are you calculating the 2.5%? Note that some fees are fixed. An appraisal on a $40K home may cost the same as an appraisal for a $400K home. If you add up the total closing costs and view it as a percentage of the loan, the smaller loan may have a higher percentage than the larger loan, even though the total cost of the smaller loan is less.

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2.5%?

Whoa, you are being robbed there. Straight-up, stripped-down, and bent-over-a-table robbed.

Never agree to "fees". If they don't want to do the work to give you a loan, there are other lenders who do.

Rarely agree to "points". If you know -- and I don't mean "think", I mean "know" -- if you know that you are going to hold that loan much longer than it would take to repay those points, then maybe. For example, if they are charging one point to lower your rate 0.25%, you want to be totally sure you will stay in the house at least four years, and probably more like six or eight years before moving or refinancing.

It's more-or-less OK to pay for the appraisal. If something goes wrong with the loan application, the appraisal will be valid for a few more months, you can try again.

I once had 14% cash for a down-payment. The loan officer said if I could come up with 15%, the rate would be reduced by 0.25%. To get the money, I took a "reverse point", which paid me 1% but raised my the rate by 0.25%.

The loan officer, who wasn't too bright, asked, "Why did you do that? The two things cancel each other out."

"I did it," I explained, "because you paid me 1% of the value of my house to sign my name twice."

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    To be clear you gained 1% equity without changing your interest rate. The loan officer was thinking about the interest rate staying the same but didn't think about the 1% equity you were gaining. – Erik Feb 1 '17 at 23:28
  • @Erik -- exactly. That house was, IIRC, valued at $93,000. Now I deal with properties worth 20 and 30 times as much, and wish I could find some lender willing to give away 1% like that. – Malvolio Feb 2 '17 at 0:31
  • One quibble, in many markets the appraisal is considered the property of the lender ordering it, and can not be transferred to another lender. It does however give you a solid reference as to the true value of the property. – Rozwel Feb 2 '17 at 15:04
  • @Rozwel -- in those markets, don't agree to pay for the appraisal. I once had a loan officer working for a lender I particularly dislike pressure me to do a refi. I finally told him I would do it, but I would not pay one red cent up front -- because I didn't trust his bank to close the loan -- and he agreed. About two weeks into the process, he calls and tells me I have to pay for the appraisal. I told him that was the exact sort of thing I expected from his bank, and nope. He twisted and wriggled for days, and I suspect eventually paid for the appraisal from his own pocket. – Malvolio Feb 2 '17 at 15:38

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