These costs are typically paid for by the buyer, but can be reimbursed by the seller. Since the set day for the mortgage to be paid typically isn’t the same day that closing occurs, an adjusted payment and interest is calculated based on the date of closing and when the next payment will be due.

These costs can be paid by the buyer, the seller, and are only paid if the home will be part of a Homeowner’s Association. Much like pro-rata property taxes, the costs are calculated based on the portion of the year that the home will actually be owned since closing rarely happens on the day that the costs are assessed.

Pro-Rata Property Taxes can be paid by the buyer, the seller, or both and reflect the fact that most houses don’t go into closing on the same day that property taxes are assessed. Because of this, taxes are calculated based on the portion of the year that the house will actually be owned.

The lender on the mortgage will typically require that the mortgaged property be insured throughout the life of the mortgage. This is typically paid by the buyer, but may be reimbursed by the seller. The entire first year of the insurance premium can be required by the lender, which can be added to closing costs if the buyer has not already paid the insurance company directly.

A home warranty can be purchased by either the buyer or the seller, with the buyer deciding to add it at closing and the seller using it as part of their marketing strategy to sell the home by offering the warranty.

Home warranties are purchased for resale homes to insure the major household systems against repair or replacement in the first year of ownership. It’s a way to make sure that for the first year of owning a home, the new homeowner is protected against appliance breakdown resulting in them having to spend hundreds or thousands of dollars on repairs and replacements.

Home Warranties are optional and are typically not required by lenders as a condition of the mortgage loan.

The purpose of the appraisal fee is compensation for a professional, licensed appraiser to perform an appraisal on the property to verify that the property’s fair market value is equal to or greater than the asking sale price.

This fee is usually paid for by the buyer, though negotiations can end with the seller paying the fee, and is often required by lenders as a condition of the mortgage loan.

If you’ve ever purchased a home you’ve probably heard about points, whether you purchased them or not. For those that aren’t familiar with the practice of buying points on a mortgage, it’s money that the buyer gives to the lender as a form of up-front, pre-paid interest rate on the loan, with one point equaling one percent of the loan.

Purchasing points can be done for various reasons, including in an effort to lower the interest rate on the loan, or to have a lender agree to let you qualify for the loan. While lenders requiring the purchase of points is their way of protecting themselves, a buyer deciding to purchase points represents something of a gamble, with the buyer having to know there will come a point where the money they put in up front will be off-set by what they’re saving down the line with the lower interest rate.

Deciding to buy points on a house that you plan to quickly refinance or resell isn’t a wise choice as you’ll end up losing money in the long run, but it can be beneficial if you’re planning to have the house past the point where the costs off-set.

Closing costs, when paid, can go to a lot of different people and institutions. The mortgage application fee is one that goes from the buyer to the lender to cover the costs of processing the loan application for the house. In some cases this fee can be paid directly to the lender before entering into closing, though usually it is taken care of at closing.

If you have a zero closing cost mortgage, this fee could be waived, helping to lower your costs.

Often the biggest of the closing costs, the Brokerage Commission is paid by the seller to the real estate broker as compensation for the sale and the marketing of the property to potential buyers. The Brokerage Commission is typically calculated as a percentage of the sale price, though agreements between the seller and real estate agent can change this.

It’s pretty hard these days not to get bombarded with offers to refinance your mortgage, but what exactly does it mean to refinance and why do people do it? Here are some answers.

What is Refinancing?

At its most basic, refinancing is changing the terms of your financial obligation for another one. In terms of a mortgage, this generally means changing the terms to something more beneficial to your situation and that typically saves you money.

Why Do People Refinance?

There are a lot of different reasons why people refinance, but it really comes down to five main reasons:

1. Better interest rates
2. Consolidating debt into a single loan to pay off
3. Reducing monthly payments by extending the length of the loan
4. Reducing or altering the risk on the loan, such as going from a variable-rate to a fixed-rate
5. To free up cash

Any and all of these are good reasons to refinance, but the first and fourth reasons in particular are a great way to go from a mortgage with a high interest rate, or one that keeps changing on you, to one with a much lower interest rate that stays there and can save you money, potentially thousands in the long run.

Last Thought

Just like when you first got your mortgage, there can be closing costs associated with refinancing, so be sure to look for a company offering zero closing cost mortgages on refinancing as well to save yourself even more money.