How much does it cost to refinance a mortgage?
How much does it cost to refinance your home? Learn how to estimate the expenses of a mortgage refinance. (iStock) Refinancing your home can save you a lot of money on interest if you can secure a lower mortgage rate or shorter repayment term. That being said, closing costs can add up quickly and may not always make refinancing worth it. So, how much does it cost to refinance? It depends. But you’ll need to account for closing costs, which can range between 2% and 5% of the total loan amount. Here’s a look at why people refinance their mortgage, what it generally costs, and how to lower some of your closing costs. You can easily compare personalized mortgage refinance rates on Credible. A few potential benefits that you stand to gain by refinancing your mortgage include: One of the best reasons to refinance your mortgage is to secure a new, lower interest rate. Lowering your rate by a single percentage point can save you thousands of dollars in interest payments over the life of the loan. Refinancing generally isn’t worth it if it results in a higher interest rate. A lower interest rate may also lead to a lower mortgage payment, which can take some pressure off your monthly budget. If you improved your credit score since taking out your original home loan, you may qualify for a better interest rate. If you choose to refinance to a shorter loan term, you can save even more money on interest. The fewer months you need to make a mortgage payment, the less you spend on interest. Just keep in mind that your monthly payment will likely go up if you shorten your repayment term. WHEN IS THE RIGHT TIME TO REFINANCE MY MORTGAGE? Refinancing also gives you the chance to change your loan type. If you have an adjustable-rate mortgage (ARM), you may find that switching to a fixed-rate mortgage makes repayment easier to manage since you’ll now have a consistent monthly payment. Switching to a fixed-rate mortgage also locks in your interest rate so it can’t fluctuate over the life of your loan. If you can secure a lower interest rate now by switching to a fixed-rate mortgage, it can potentially save you a lot over the years. A cash-out refinance lets you access the equity you’ve built in your home over the years. You can use that money to finance repairs, renovations, or to pay down other forms of debt — while potentially lowering your rate in the process. Mortgage refinancing costs vary, but you’ll need to pay closing costs such as a loan origination fee, appraisal fee, title fee, and underwriting fee. Refinance closing costs average $5,000 but can vary based on a variety of factors, according to Freddie Mac. Some of the factors that affect your closing costs include: Let’s look at an example of how much refinancing home loans can cost. Say you’re five years into a $400,000, 30-year mortgage. Your original home loan carries an interest rate of 5%, and you want to refinance into a new 30-year loan with a 3.5% interest rate. By refinancing into that lower rate, you could reduce your monthly payments by nearly $500 and potentially save more than $50,000 in interest over the life of the loan. Credible makes it easy to compare refinance rates from multiple lenders. If you’re planning to refinance your mortgage, expect to pay closing costs. Some of the most common mortgage refinancing fees include: If you’re on a budget, here are a few ways to lower the costs you’ll need to pay when refinancing: If you’re looking to avoid paying closing costs, you can try to pursue a no-closing-cost refinance loan. A no-closing-cost refinance won’t help you completely avoid closing costs, though. While you won’t need to pay closing fees at signing, your lender will add them to your new mortgage loan, and you’ll pay them along with the rest of your loan over time. Still, not having to pay closing costs up front can make refinancing more accessible if you’re on a tight budget. When deciding if refinancing is worth the cost, consider these factors: To start, you need to secure a new loan with a lower interest rate for this move to make sense. After that, you need to confirm you’ll have the mortgage long enough to break even on those closing costs. It can take years to recoup closing costs, so if you think you might sell your home soon, refinancing doesn’t make a whole lot of sense. If you’ve recently improved your credit score, you may be able to secure a low enough interest rate for the closing costs to balance out. If you’re looking to lower your monthly payment, you can do that by refinancing to a lower interest rate or by lengthening your loan term. It’s worth noting that lengthening your loan repayment timeline can lead to spending more in interest, even though it might lower your monthly payments. Credible lets you compare mortgage refinance rates from various lenders in minutes. Source: Read Full ArticleWhy refinance your mortgage?
Lower your rate
Change your loan term
Switch your loan type
Tap into your home equity
How much does mortgage refinancing cost?
Factors that affect closing costs
Common mortgage refinancing fees
How to lower some closing costs
Can you get a no-closing-cost refinance loan?
How to know if refinancing is worth the cost
You want to save on interest
You want a lower monthly payment