Read the Bottom Line, Not the Refinance Closing Costs

Far too common in mortgage refinance, significant financial benefits are lost to potential borrowers because of closing costs. Many refinance shoppers see a several-thousand dollar amount for lender fees and settlement costs, and quickly slam the door before they really look under the hood. Quickly scoffing at closing costs and not assessing the bottom line financial impact of a new refinance home loan could end up costing a homeowner thousands in real benefits if they stay with their current mortgage.

Now, what you really want to assess, are two crucial key components. 1) How long do I plan on staying with the new home loan if I refinance now? 2) What is the bottom line payment for the refinance after closing costs are rolled back into the loan.

For instance, suppose you are refinancing your current 30-year mortgage that has a balance of $193,000 that you have been paying on for 2 years. Your current rate is at 6.5% and your monthly principle and interest payment is $1,248. You are qualified for a 4.875% 30-year fixed rate with closing costs of $7,000, so your new loan amount would be $200,000 at 4.875%. This would result in a principle and interest payment of $1,058.

The total bottom line savings is $190 per month and the breakeven point for closing costs is 37 months ($7,000 closing costs divided by the $190/month savings).

So if you plan to stay in the new mortgage for more than 37 months this is a good deal. If not, then you might be better off to stay with your current mortgage.

So, what do you stand to lose by screaming about the $7,000 closing costs and axing the refinance plans altogether?


Current Monthly P&I Payment $1,248
Proposed Monthly P&I Payment $1,058
Total Monthly Savings $190
Closing Costs $7,000
Break-Even Point (Months) 36.84
1st Year Cash-Flow Increase $2,280
5 Year Savings $4,400
10 Year Savings $15,800
15 Year Savings $27,200
20 Year Savings $38,600
30 Year Savings $61,400


So, you can see in a real world current example that paying closing costs may not be such a bad thing for your financial well-being, as long as you account for the bottom line and the length of period you plan to stay with your new home loan.
May the Mortgage Refinance Rates be with You!

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