Lower interest rates may be tempting, and as part of a sound financial plan you should consider whether it makes sense to refinance your current mortgage but don’t forget to factor in the costs of the new home loan in your calculations.
The costs of the new loan could negate potential savings, particularly if you intend to sell before your monthly savings can make up for the costs of refinancing a home–so it pays to estimate costs and shop carefully before proceeding.
Don’t be surprised if your new mortgage carries most of the same costs as your initial purchase mortgage–including an appraisal, processing fees, and other loan closing costs.
Some of these costs and fees may include:
Closing costs vary city to city but might be 2% to 5% percent of the home’s value. Often, homeowners can wrap their closing costs into the new mortgage, but doing so will increase the loan amount.
Early payoff penalties: Some mortgage companies charge a fee if you pay off your current mortgage in full. Check to see if your home loan carries a prepayment penalty before obtaining a mortgage refinance–this could change the calculation.
Several factors influence the overall cost of refinancing and how you think about them. When evaluating your application and estimating your fees, the following may be considered:
As with your purchase mortgage, financing costs vary according to individual circumstances. Each geographic area, housing market, and lenders will have different policies and fees.
When deciding if a mortgage refinance is right for you, it is important to calculate closing costs and fees. Find out if you can wrap costs into your loan or if you have to pay the costs upfront. Most of all, calculate how long it will take before your monthly savings surpass the costs of refinancing – while you may not be able to predict the future, are you planning to still be in your home at that point?
Disclaimer : The information contained in this article has been prepared by an independent third party and is distributed to consumers for education purposes only. The information is not guaranteed to be accurate and does not represent the opinions of 5-Star Loan.
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