Mortgage  Question?
Lender quoting high closing costs on cash out refinance

I am looking to do a $500,000 cash-out refinance to lower my interest rate and pay down credit card debt. The lender is quoting me $25,000 in points, which seems high. Should I still refinance?

Michael Jensen, Mortgage and Finance Guru
, Mortgage and Finance Guru

First off, $25,000 in closing costs of any type on a $500,000 loan is excessive and borderline egregious. My first reaction was that you are paying half a discount point to lower your interest rate but half a discount point equals 0.5% of the mortgage amount, so $2,500 in your case, not $25,000. We provide a Comprehensive Overview of Discount Points on FREEandCLEAR and I would check with your lender to make sure they did not make a calculation mistake if in fact you decided to pay discount points.

I also recommend that you shop multiple lenders to find the mortgage with the best terms. Your mortgage rate for a jumbo, cash-out refinance seems reasonable but your closing costs / point fees are unreasonably high. You can review lenders in your area by clicking INTEREST RATES  We advise you to contact at least four lenders as comparing lenders is the best way to save money on your mortgage. Plus, selecting the wrong loan can cost you thousands of dollars and it is not too late for you to switch lenders on your refinance. 

When you shop multiple lenders, we recommend that you use our Debt Consolidation Refinance Calculator to understand how much money you can save by consolidating your high cost credit card debt. You can input the mortgage rate and closing costs proposed by each lender into the calculator to evaluate their proposal and determine your monthly savings and months to breakeven (recover your closing costs).

Your other option is to not refinance and instead apply the extra money that you would spend on your new mortgage payment to paying down your credit card debt. So instead of refinancing and incurring closing costs and extending the term of your current mortgage, you apply the difference between your new proposed monthly mortgage payment and your current payment to pay down your credit card debt. This approach enables you to pay down your credit card debt faster, avoid closing costs and reduces your total interest expense over the life of your loans.

Paying more than your required monthly payment is also called mortgage acceleration. We provide a thorough overview of How Mortgage Acceleration Works on FREEandCLEAR and you can use our Mortgage Acceleration Calculator to evaluate different acceleration scenarios for your loans. The downside to acceleration, however, is that you would not take cash out of your home although you could accomplish that through a home equity loan or line of credit (HELOC), which would probably be more cost-effective than a full refinance.

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About the author

Michael Jensen, Mortgage and Finance Guru

Michael is the co-founder of FREEandCLEAR. Michael possesses extensive knowledge about mortgages and finance and has been writing about mortgages for nearly a decade. His work has been featured in leading national and industry publications. More about Michael

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