The lender may actually charge you closing costs but then roll them into your principal balance, thus increasing your loan size.
Or the bank might offer a lender credit to cover your closing costs. The lender recoups the expense by charging you a higher interest rate on your refinance loan.
interest rates, and check how much interest you’ll end up paying in each refi scenario. Compare the interest costs to your current loan to see how much you’ll save and how long it will take to recoup costs.” data-reactid=”98″ type=”text”>If you’re shopping for a no-closing-cost refi, ask multiple lenders for quotes. Compare lender fees and
interest rates, and check how much interest you’ll end up paying in each refi scenario. Compare the interest costs to your current loan to see how much you’ll save and how long it will take to recoup costs.
“You shouldn’t refinance if it’s going to cost you more than two years to recoup your closing costs, if you have any,” says Taylor Allgyer, vice president of First Savings Mortgage. “If you do a no-cost refinance, your break-even point is when you sign the closing papers.”
4. Negotiate your mortgage rate
An amazing mortgage rate won’t lower your closing costs, but it can help you recoup the fees more quickly.
Here’s an example: Say one lender offers you a 3.25% rate on your refinance, dropping your mortgage payment by $135 a month. The company will charge $5,000 in closing costs for the refi.
If you can negotiate the interest rate down to 2.75%, then you save $220 a month. You break even sooner with the lower rate: 23 months at 2.75%, versus 37 months with 3.25% loan.
get five quotes and comparing them, you’ll save an average of $3,000 over the life of a 30-year mortgage, as opposed to settling for just one quote, according to Freddie Mac research.” data-reactid=”104″ type=”text”>To negotiate, shop around and get rate quotes from several lenders. If you
get five quotes and comparing them, you’ll save an average of $3,000 over the life of a 30-year mortgage, as opposed to settling for just one quote, according to Freddie Mac research.
Get rates from multiple insurers and review them side by side, because you may find a better deal than you currently have.” data-reactid=”105″ type=”text”>Remember to shop around for your homeowners insurance, too, next time your policy comes up for its annual renewal.
Get rates from multiple insurers and review them side by side, because you may find a better deal than you currently have. 5. Boost your credit score
Another way to knock down your mortgage rate — and help you recoup those refi costs — is by improving your credit score. Generally, having a higher credit score “makes a huge difference” on your refinance rate, Allgyer says.
According to FICO data, borrowers with credit scores above 760 may shave about 0.4% off their rate for a 30-year, $300,000 mortgage compared to borrowers with scores ranging from 680 to 699.
That adds up to a savings of $63 a month and nearly $22,700 over the life of the loan.
take a peek for free.” data-reactid=”130″ type=”text”>Before getting a refinance, check your credit score. Nowadays, you can
take a peek for free.
If your score needs work, then “don’t open up new accounts, try to keep your (credit card) utilization low and make your payments on time,” says Allgyer.
6. Consider buying ‘discount points’
Discount points are fees you can pay a lender at closing to knock down your interest rate a bit and reduce your mortgage costs.
These fees are totally optional. One point will cost you 1% of the loan value, so on a $300,000 mortgage you’d pay $3,000 per point to get a lower interest rate. How much lower depends on the lender.
But before buying down the rate, you’ve got to consider if it’s worth it. If the lower rate on that $300,000 loan in the example saves you $100 a month, it’ll take you 30 months to break even on your $3,000 point.
qualify for a low refinance rate on your own, with no points required.” data-reactid=”136″ type=”text”>Paying points can be a good strategy if you expect to own the home for a long time — or if that’s what it takes to qualify for the mortgage. If you have strong credit, you should be able to
qualify for a low refinance rate on your own, with no points required.