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You Might Be Paying Too Much for Mortgage Refinance Closing Costs

Illustration for article titled You Might Be Paying Too Much for Mortgage Refinance Closing Costs

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As low mortgage rates continue to break records, you may be feeling the pressure to refinance. This week, the average rate for a 30-year fixed-rate mortgage is 2.88%—which doesn’t include origination points—according to Freddie Mac. While you may score a lower interest rate, experts warn that refinancing isn’t always the deal you may expect because of high closing costs.

“Your brain may latch onto the low interest rates—but closing costs may be harder to wrap your head around,” says Jeff Ostrowski, senior mortgage reporter with Bankrate. As Ostrowski reports, it’s easy to get confused by the flood of paperwork and industry jargon. These factors make it difficult to know how much your mortgage refinance costs—and whether it’s worth it.

Mortgage refinance closing costs—which may include an origination fee, credit report fee, home appraisal, title insurance, and more—typically range from 2% to 6% of your total loan amount. So for a $200,000 mortgage, you can expect to spend $4,000 to $12,000 for closing costs—but some banks may charge even more. You will see a range of closing costs—which is why you need to shop around for multiple quotes.

For a 30-year mortgage refinance, Ostrowski says you should try to break even within two to three years. This means you should save enough on your monthly mortgage payments to cover your closing costs within this timeframe. If you want to change cities or buy a bigger home within the next few years, the refinance may not be a good move.

You may also see offers for a no-closing-cost mortgage refinance—which may be appealing if you can’t stomach high upfront costs. The problem is, lenders may try to offset some of those expenses by charging you a higher interest rate. You would save less money on your monthly payments—so the longer you’re planning to stay in the home, the less attractive this option becomes.

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