You Might Pay Too Much for Closing Mortgage Refinancing Costs
As low mortgage rates continue to hit records , you may feel the need to refinance . According to Freddie Mac , this week the average rate on a fixed-rate mortgage for 30 years is 2.88% (excluding issuing points). While you can get a lower interest rate, experts warn that refinancing is not always a deal you can count on due to the high costs of closing a deal.
“Your brain may be clinging to low interest rates, but it’s harder for you to comprehend the cost of closing,” says Jeff Ostrowski, a senior mortgage reporter at Bankrate. It’s easy to get lost in the flow of paperwork and industry jargon, Ostrowski says . These factors make it difficult to understand how much mortgage refinancing costs and whether it is worth it.
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The costs of closing a mortgage refinance deal – which can include loan origination fees, credit report fees, home appraisals, title insurance, and more – typically range from 2% to 6% of your total loan amount. So for a $ 200,000 mortgage, you can expect to spend between $ 4 and $ 12,000 to cover the costs, but some banks may charge even more. You will see a range of closing costs – which is why you need to look closely at multiple quotes.
Ostrowski says that for a 30-year mortgage refinance, you should try to break even within two to three years. This means you have to save on your monthly mortgage payments to cover the closing costs during that time frame. If you are looking to change cities or buy a bigger home over the next few years, refinancing may not be the best solution.
You can also see offers for mortgage refinancing at no additional cost, which can be attractive if you can’t handle the high upfront costs. The problem is that lenders may try to offset some of these costs by charging you a higher interest rate. You will save less money on monthly payments, so the longer you plan to stay at home, the less attractive this option becomes.