Understanding the costs to refinance

House and calculator atop $20 bills

Mortgage rates are low. Really low.

If you're thinking about refinancing your home loan and can shave a point off your existing mortgage, it may be worth it.

But the interest on your mortgage refinance isn't the only cost to consider. Look at closing costs as well.

Taking out a new home loan typically costs you 3% to 6% of your new loan’s balance in fees or closing costs. These costs are one way your bank or lender makes a profit on the loan.

That can add up to thousands of dollars due at closing or wrapped into the new loan.

Like when you first purchased your home, there are several other fees your lender might tack onto your new mortgage. You could find yourself paying for a new round of application fees, attorney fees, appraisal, title searches, and other miscellaneous fees.

You might even have to pay an early payoff penalty on your original mortgage, depending on how your original loan was structured.

Consider asking your lender to waive some of these fees if possible.

You will want to ensure that these additional costs that you incur will be offset by the savings you realize with your new lower interest rate.

>Refinancing a 30-year home loan with 6% interest to 5% can reduce the monthly payments on a $200,000 mortgage by about $130 per month. It would make it worthwhile to refinance your home only if you were staying in it for at least four years.

That would allow you to recoup the cost of your new loan’s closing cost fees through the interest savings.

While the appeal of a new lower interest rate is incredible, the decision to refinance is not always as obvious.

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