The Additional Costs of Refinancing Your Home

On the surface, a mortgage refinance seems like a great idea! Looking at the market you can see that current interest rates are lower than what you are currently paying, but what most homeowners forget is that CLOSING COSTS will come into play.

Depending on the lender, where you live and the amount you need to borrow, closing costs can range from 3-6% of the loan amount. Refinancing is not like starting over from scratch, so things like homeowners insurance, mortgage insurance and property taxes should remain the same. In some cases, you will receive a refund from your remaining escrow if changing lenders.

What do closing costs include?

Home inspection fee
Origination fee
Application, appraisal and title search
Points fees
Lender’s attorney fees

Points fees can be avoided! These are fees that you would pay to the lender upon closing and in exchange you would get a lower interest rate for using them. Simply ask for a par or zero quote which means that points will not be a factor.

Some quick math can help you determine if it really is worth it after closing costs. Say your closing costs are 5% on a $100,000 refinanced mortgage. And your new rate is 1% lower than your old rate. Taking into account that 1% reduction, it would take around five years to make up those $5,000 in closing costs.

So ask yourself, will you be in the home long enough to take advantage of the savings a refinance will generate for you?