mortgage refinancing, finance settlement costs, when to refinance, where to refinance, refinance calculator, break-even period, refinancing, mortgage refinance, refinance rule of thumb

Finance Settlement Costs in Mortgage Refinance?
 March 15, 1998, Revised January 4, 2003, June 30, 2007, November 25, 2008, Reviewed September 10, 2010

"I expect to stay in my house a long time and don't want to pay the high rate required on a no-cost mortgage, yet I'm strapped for cash. Can I pay the settlement costs but borrow a larger amount to cover them? Would this reduce the benefit from refinancing?"

Lenders ordinarily will allow you to fold the settlement costs into the loan amount on a refinancing without classifying it as a cash-out refinance. For example, if the balance on your old loan is $100,000 and settlement costs including the lender's fees are $3,750, the new loan could be for $103,750. A loan larger than that would be a cash-out with a higher price.

Refinance Calculator 3a, Refinancing One FRM Into Another, shows the net gain from refinancing if the borrower exercises a financing option, or if she doesn't. Those who use it will find that it reduces the gains from refinancing, extending the break-even period. This is largely because the borrower must pay interest on the costs at the mortgage rate.

Financing the costs, furthermore, can flip the loan amount above 80% of property value, which triggers mortgage insurance. See Financing Closing Costs Can Sometimes Be a Bad Idea. The calculator automatically factors mortgage insurance into the cost calculation, if it arises.
Sign up to Receive New Articles