How much you’ll pay to refinance your mortgage depends on the size of your loan and your lender’s closing costs. In general, though, you can expect to pay from 2% to 6% of the amount you are borrowing in closing costs. Say you are refinancing a $200,000 mortgage. You can expect most lenders to charge you from $4,000 to $12,000 in closing costs.
Why so much money? There are plenty of closing costs involved in a refinance. You’ll need to pay your lender’s origination fee, pay a fee to the appraiser who determines the market value of your home and cover the cost of your new loan’s title insurance.
Closing costs, then, involve a lot of money, which is why many homeowners opt for no-closing-cost mortgages.
What are no-closing-cost refinances?
First, the name “no-closing-cost refinance” is misleading. Your lender will still charge closing costs. But you won’t pay for them upfront. Instead, your lender will roll them into the total amount you are refinancing. You then repay these closing costs over time, each time you send a monthly mortgage payment.
Say your lender is charging $6,000 in closing costs and you are refinancing $200,000. Instead of paying back $200,000, you’ll pay back $206,000 — your loan’s principal balance plus your closing costs.
The bad news? When your lender rolls your closing costs into your new mortgage, you’ll pay more in the long run because your closing costs are now being assessed at the same interest rate as the rest of your loan balance. Instead of paying, say, 6% interest on a loan with a principal balance of $200,000, you are now paying that same interest rate on a loan with a balance of $206,000.
You won’t, though, have to come up with that $6,000 in cash. That’s an important factor for many homeowners who don’t have that much money saved. By opting for a no-closing-cost refinance, these homeowners can refinance to a lower interest rate even if they don’t have much extra cash in their bank accounts.
Should you consider a no-closing-cost refinance?
Is a no-closing-cost refinance right for you? That depends. If you can afford to pay your refinance’s closing costs upfront, that usually makes more financial sense. You’ll pay less over time.
Is not having enough extra cash the only thing preventing you from refinancing a loan to a new one with a lower interest rate? If so, a no-closing-cost mortgage might be a smart financial move.
Just make sure to do the math: You want to be certain that the money you are saving each month by refinancing is high enough to quickly cover the amount you’ll pay in closing costs.
Work with qualified real estate and tax professionals to make the right choice for your situation.
Claudine Steinfurth
REALTOR®
(216) 409-4039
csteinfurt@aol.com
RE/MAX Above & Beyond
7570 Chippewa Road
Brecksville, OH 44141
