Refinance rates are at historic lows, making this an excellent time to refinance your mortgage. Use the tips below to keep closing costs low and refinance to a better mortgage loan.
One of the primary ways to lower your mortgage loan costs is through refinancing to a loan with a lower interest rate. Luckily, you can get a refinancing loan with a low rate pretty easily right now thanks to the coronavirus pandemic.
After the economy took a hit from the COVID-19 pandemic in early 2020, the interest rates on mortgages have continued to decline, with the 30-year fixed-rate loan rate dipping below 3% for the first time since 1971.
No time in recent history has been as good as right now for refinancing your mortgage loan, but it’s important to keep in mind that while refinancing a mortgage loan can save you a ton of money in interest, it also comes with new closing costs.
These closing costs can cost you more than you’ll save with a new interest rate on a loan refinance, so before you sign on the dotted line for a refi, it’s important to ask yourself questions like, “How much should I pay in closing costs for a refinance?”
You’re already familiar with closing costs since you had to qualify for a mortgage when you first bought your house, and a refinance is nothing more than a new mortgage agreement. To refresh your memory, closing costs are the expenses paid to create the mortgage agreement. When you refinance your loan, you’ll pay many of the same expenses that you paid when you took out your original home mortgage.
Calculating refinance closing costs is complex and there’s no real standard method. Your location and the lender you choose are two factors that will have a large impact on your closing costs. Other factors that influence how much you pay in closing costs for a refi include the mortgage type, the term of the loan, the amount of home equity you have and your credit score. The property tax rate where you live can also have an influence on the closing costs of your refinance.
According to the U.S. Federal Reserve Bank, mortgage refinancing fees will typically run from 3% to 6% of the loan amount. ClosingCorp, a technology firm that collects and analyzes real estate data, stated in its Average Mortgage Closing Costs Report for 2019 that the average closing costs in the U.S. in 2019 were $5,749 including taxes and $3,339 without taxes.
One of the best ways to find out how much you’ll pay in refinance closing costs prior to closing is to use a reliable refinancing calculator. This will give you a good idea of how much the refinancing will cost, what your break-even point is and how long it will take before you recover the closing costs.
The list of closing cost expenses is a long one, and it makes sense for you to become familiar with what charges you might see when refinancing. After all, forewarned is forearmed, as they say.
With that in mind, here are some common refinancing costs and what you can expect to pay.
The total closing costs for refi will tell you if it is financially savvy to replace your current mortgage with a new mortgage. When you consider the thousands of dollars in closing costs you’ll be paying, it makes sense to look for ways to save on the total closing costs.
Luckily, there are several things you can do to minimize your closing costs when refinancing, including:
While it’s true that refinance closing costs are significant, these fees don’t have to be onerous. There are ways to decrease the closing costs on refi loans, and when you do, the loan becomes far more affordable. With refinance rates at their lowest levels in nearly five decades, there’s no reason not to at least explore refinancing your mortgage. After all, it could save you tens of thousands of dollars over the life of your loan.