If let’s say your interest rate is 6% but you want to refinance to 4% and it costs 2% to refinance, doesn’t that just make it the same number in the end? Google says the cost of refinancing is roughly 2-6% of the full loan. I don’t get how it makes it cheaper to refinance? Just seems like you’re paying the money upfront then. Please eli5! Feel like I’m missing something.
In: Economics
The interest rate on a loan is PER YEAR, so a cost of 2-6% once means you’re paying the equivalent of a single year’s interest to reduce interest for balance of loan. It’s possible for interest over course of a 30 year mortgage to mean paying double the loan amount due to the interest.
But that 2-6% cost sounds super high… when I’ve refinanced in the past, the total fees were like $1000-1500 on $400k-ish loans. 2-6% is more like the closing costs associated with a new purchase, not a refinancing.
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