A new year with its unmarked calendar is like a window into the future of opportunity: a new slate, an opportunity to do something different, to start over or to do just one thing you may not have accomplished last year. 

While interest rates are no longer at all times low, refinancing is still on many homeowners’ minds, especially since the housing market has improved and, hence, the value of homes making refinancing more widely available. 

I cannot count the number of times I have had the same conversation with friends and colleagues, where they tell me they just refinanced for free — that’s what their lender or told them. I hear a lot of “Don’t worry about it…it won’t cost you a thing,” and “Look at how much lower your monthly payment is.” Most of the time, I cannot refrain from stating that there is no such thing as a free refinance: Brokers and lenders do not work for free. 

Refinancing is tricky, both for the layperson and those who are more financially savvy, mostly because there are so many variables that play a role in whether refinancing is a good investment. For refinancing to make economic sense, the total amount of the new loan must be less than the total amount of your current loan over the lifetime of the loan. 

While there is no such thing as free refinancing, there are two different ways to avoid paying upfront fees:

•The lender covers the closing cost but charges you a higher interest rate, which you will pay for the life of the loan; or

•The refinancing fees are included in (i.e., rolled into or financed into) your loan, and the amount of your loan is actually higher than the amount you intended to borrow.

End result: No-cost does not equal free. It means that you don’t need to dip into your own pocketbook to cover the upfront costs, but you will end up paying a significant amount (estimated at 3 to 6 percent of the refinanced loan amount) over the life of the loan. 

To understand the full picture of what a refinancing package may cost you, you would also want to know what the following words mean:

•Loan application fee — It covers the cost of processing your loan application and checking your credit report. Often, this fee is nonrefundable, even if you do not qualify for the loan. Cost can range from $75 to $300.

•Loan origination fee is the fee charged by the lender or mortgage broker to evaluate and prepare your mortgage loan. Cost can range from 0 to 1.5 percent of the loan principal.

•Points — One point is equal to 1 percent of the amount of your mortgage loan. 

To complicate matters, there are two kinds of points: One is referred to as loan-discount points, which is a onetime charge paid to lower the interest rate on the loan; the other type is a one-time charge paid to reduce the interest on your mortgage. 

Points are often the only cost you are able to negotiate with your lender/broker. Cost can range from 0 to 3 percent of the loan principal. 

•Appraisal fee — Even if you just had your home appraised, the lender will most likely require you to get a new one. Based on the appraisal, the lender will let you know the amount of loan you qualify for. Cost can range from $300 to $700. 

Various other fees you may encounter: inspection fee, closing cost and homeowner’s insurance. 

To determine if refinancing is a good idea for you, use the refinance calculator from the National Bureau of Economic Research, which can be found at zwicke.nber.org/refinance/index.py. 

The next time someone tells you that they just refinanced for free, you will know that what they are telling you is that there were no upfront costs but that they either paid a higher interest rate or rolled the fees into the principal of the loan. 

MONICA LANGFELDT is founding partner at Queen Anne-based Langfeldt Law PLLC (www.langfeldtlaw.com). 

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