We are in the middle of a refinance boom – which we all know. At least, hearing the news at all or turn on the radio, and we know it.
The biggest obstacle I hear from homeowners to refinancing is that the closing costs are so high. And they are…unless you structure your loan the right way.
Here are your options, based on a Good Faith Estimate that I did for a borrower last week. A $250,000 loan is what we were preparing to refinance. And here are the options that I gave him for a 30 year fixed rate:
- 4.25% with $5,300 in closing costs (including one percent origination, or $2500)
- 4.50% with $2,800 in closing costs, or
- 4.75% with No Closing Costs
You see, one thing is the “market” rate, which currently has been floating between 4.125% and 4.375% for a 30 year fixed rate loan. However, that is quoted with the higher closing costs. As the rate increases, lenders make what we term “Yield Spread” or the cost differential between market rate and the quoted rate, which we can use to pay all the borrower’s closing costs, and still make our profit.
Most borrowers who are planning on staying in the property for some time tend to opt for the middle option, the lower closing costs, balanced with a still quite low interest rate.
What makes sense for you? I can give guidance there based on your current situation and goals; but only you can ultimately make that decision.