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You may be paying too much to refinance closing costs

Illustration for article titled You may be paying too much for mortgage mortgage costs

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As low mortgage rates continue to break records, you may feel press to refinance. This week, the average interest rate for a 30-year fixed-rate loan is 2.88% – which does not include origin points—according to Freddie Mac. While you can get a lower interest rate, experts warn that refinancing is not always the deal you can expect due to high closing costs.

“Your brain may be stuck on low interest rates – but it can be harder to keep costs in your head,” says Jeff Ostrowski, senior lender at Bankrate. Som 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 refinancing costs – and if it’s worth it.

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Borrowing costs for refinancing your mortgage – which may include an initial fee, credit report fee, home valuation, title insurance and more – usually 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 on closing costs – but some banks may charge even more. You see a number of closing costs – that’s why you have to shop for multiple quotes.

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

You can also see offers for a refinancing of mortgage free of charge – which can be appealing if you can not get high costs in advance. The problem is that lenders can try to offset some of these expenses by charging a higher interest rate. You would save less money on your monthly payments – so the longer you plan to stay at home, the less attractive this option will be.

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