Careful Considerations
Lower monthly payments1 – and potential savings overall – may seem attractive. However, when refinancing your mortgage to reduce your interest rate it is critical to consider all of the fees and closing costs involved.
Breaking Even
Refinancing costs and fees have the potential to add up to 2% of the total new loan amount, so it’s important to ask yourself if the savings from the new loan will be equal to or more than the cost of refinancing.
Also note that refinancing costs vary from state to state and can include:
A loan origination charge, along with fees for application and processing.
Points that can be purchased to lower your interest rate even more (each “point” is 1% of your loan amount).
Any penalty for early payment on your current mortgage.
Standard settlement charges, including fees for credit reports, title searches and insurance fees, and appraisals.
Be Aware of Penalties
Your current loan may also include penalty fees for early payments, which could add to your refinance costs. Contact an experienced loan consultant at (800) 451-1895 to prepare for all the scenarios.
If you plan to stay in your home for a longer period of time, extending the term may not be as big of a consideration because you’ll have time to pay down the principal over an extended time. However, it could be a crucial factor in your decision if you plan on moving in the near future.
1 By refinancing your existing loan, your total finance charge may be higher over the life of the loan.
