“There is no such thing as a free refinance,” Orman says. “You will either pay closing costs — which can be a few percentage points of your loan cost — or a higher interest rate.”
Average mortgage closing costs now top $5,700, according to data from ClosingCorp. The closing costs could actually net you a larger expense if you leave before the savings from the refinance pay for the costs of closing a refinance. So make sure you stay long enough to pay the new low rate and let the savings pay off those fees.
If you you plan to be in the house for the long haul, refinancing into a 15-year mortgage can be the smart choice. Just make sure you can handle the payments. Your interest rate will be lower and you will save thousands over time.
However, if you’re not going to stay long-term, going with another 30-year mortgage and its lower monthly costs can be the smarter move.
Do your homework. Before you settle on any loan, always shop around. Get mortgage offers from several lenders to find the best rate available in your area and for a person with your credit score. The first offer is not always the best one and as seen above, just a half percentage point could equate to tens of thousands over time.
