Closing costs primarily account for the price of refinancing a mortgage in the U.S. For example, refinancing a 30-year fixed mortgage worth $160,000, cost around $4,345 in 2017 with a 4.45% rate.
You need to remember that the actual cost will depend on the lender, while the property’s location will be a factor as well. If you plan to refinance a mortgage in Washington, a mortgage lender in Seattle might be able to explain whether or not it is necessary for you to pay any fees or closing costs. The lender can either roll over the charges into the interest rate or the new mortgage’s monthly payments.
Calculating Monthly Payments
By 2021, refinancing an original mortgage with a fixed rate of 4.45% should cost nearly $4,200 in closing costs on average, assuming that the remainder is fixed at a 4% rate. The average amount of closing costs would then be reduced to around $3,700.
If you intend to refinance the original mortgage into a 15-year fixed loan with a 3.26% rate, doing so can incur almost $200 in additional monthly payments. However, this reduces your overall interest payments by more than $47,000 over the tenure of the new mortgage. You should also be aware that other transaction costs also affect the total cost of refinancing.
Other Expenses for Refinancing
Closings costs for a remortgage might be worth the same for a new mortgage, although certain expenses such as real estate taxes, mortgage insurance, and homeowner’s insurance might no longer be necessary when refinancing a house under your ownership.
Some of the additional fees that you have to settle includes a local recording fee for updating a title deed with the status of the new mortgage. The amount can vary based on the location of your house. You should also expect to pay a reconveyance fee that can be charged by the original mortgage lender, which will then release their interest from your home.
Knowing Real Estate Trends
Some economists believe that mortgage rates may increase to 5.8% this year. This means that refinancing your existing loan might not be a good idea, but take note that interest rates may only begin their upward trend starting in 2019 based on industry forecast. Even if you plan to sell your house shortly after refinancing, the money you save from mortgage payments may be offset by the transaction costs.
On the bright side, more millennials will continue to buy houses in the coming months. Experts estimated that their home-buying activity will peak by 2020. If you think the profit from a resale will trump the closings costs of refinancing, then plan before interest rates start to increase soon.
In the end, when choosing the right strategy for refinancing a home mortgage, it’s better to consult a lending group with multiple loan options to have a better selection for paying off your debt. As the interest rate can continue to increase in the coming years, think carefully if refinancing now will be a cost-saver for you.