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
A one-time 2% payment is *not* the same as 2% in interest for, say, a 30 year loan. If you pay 2% of $100,000, that’s $2,000. If you pay 2% in interest on $100,000 for 30 years, you’re paying a total of $3,952 over the length of the loan in interest (if you’re making the minimum payments each month).
Refinancing to a lower mortgage rate means having a lower monthly payment. That can mean having more money to save or spend on other things, and potentially making more money from renters if you decide to get a second property and rent your first one out.
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