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
That 2-6% cost of refinancing is just a one time lump payment.
Your interest rate is every year. So the difference between a 4% and 6% interest rate is a 2% cost every year.
Just as an example, the total amount paid for a 6% $100k 30 year loan is $215k.
But a 4% is $171k
That’s a difference of $44k or 22 times more than 2% of the original loan amount.
Latest Answers