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My wife and I bought our house about 4 and half years ago, just a little before the housing market crashed. We didn't have a lot of money, so we played it safe and got into a house that most would call modest, at best. Unfortunately, interest rates peaked right around when we got into our home and so we're stuck with one at 8%.

We would like to refinance our home loan now since rates are so low. So I went and talked with a credit union a few weeks ago about it, and I found out that to refinance with them would cost somewhere around $5 to $6k in fees.

Question #1: Is this an unusual amount to pay for refinancing a home loan?

However, my wife and I would love to move into a newer home, since we're better established and making more than we did when we first bought our home, which leads me to my 2nd question -

Question #2: Is refinancing not worth it if you might move in the next year or two?

The real kicker of the entire problem is that homes just aren't selling where we live. Even in our price range, which is low compared to most of the city, few homes are being sold. We stuck it on the market for about 3 to 4 months and had very little interest.

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Is this an unusual amount to pay for refinancing a home loan?

Yes, I would say it seems pretty high. Although credit unions usually have pretty good deals, I would shop around a bit.

Is refinancing not worth it if you might move in the next year or two?

Totally not worth it if you'll be moving in a year or two. You need to think realistically about what you could sell your house for though. If you bought it 4 years ago, it's likely gone down in value significantly (depending on your locale). Are you prepared to take a significant loss to sell? If not, you might be forced to stick it out for 3-5 years or more.

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  • Without knowing the size of the mortgage, $5-6k in fees may be a fine deal. Eric's totally right though - it probably won't be worth it if you'll move soon. Just find your "break-even" point by figuring how many months it will take in payment differences to overcome the money you end up spending in fees.
    – Jeffrey
    Commented Aug 5, 2010 at 16:54
  • Thanks for answering that first question. With regards to the second question, our house hasn't gone down, but it hasn't gone up very much either. Unfortunately, I've had to sink somewhere around $3 to $4k in house maintenance (new carpet, new counter tops, new kitchen flooring), which hasn't upped the value of it either. Realistically, if we wanted to sell we'd probably have to put it up for what we bought it at, and then I lose all of that money that I paid to close the loan. On the flip side, the short sales going on right now are spectacular, so one could get a nice house for cheap.
    – Jagd
    Commented Aug 5, 2010 at 16:57
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    @Jagd - Don't forget about that 6-7% realtor commission as well (unless you plan on selling yourself)
    – Eric Petroelje
    Commented Aug 5, 2010 at 17:54
  • @Eric - Indeed. Our real estate agent wanted 6%. Had we sold our home, his agency would have made more money on the sell than we would have. That was actually a large part of the reason I pulled it off the market. I think that lots of home sellers are realizing what we did, thus the astounding number of homes being sold by owner. IMO, too many people have their hand in the pot (the agents and all), and its doing nothing but inflating home prices because most people roll the commissions into their home loans.
    – Jagd
    Commented Aug 5, 2010 at 18:21
  • @Jagd - don't pay the 6%, ask for a better rate. I've done it on two homes I sold and got 1% better than the initial rate each time. And shop around, talk to 2-4 agents.
    – bstpierre
    Commented Aug 6, 2010 at 3:09
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  1. Shop around a bit. You can probably do better than $5k.

  2. See this calculator to decide if your payoff period will happen before you think you'll move. If you're at 8% now it may come sooner than you think -- especially if you can lower that closing cost estimate and still get a good rate.

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If that $6k includes points to buy down the rate, it could be a good deal, depending on the total cost of the house and the rates involved. If that's pure administrative and legal fees, that seems pretty high. I've bought a number of houses in my time and I don't think I ever paid over $2000. I refinanced my current house a year or two ago, with the same bank, and total closing costs were $500.

That said, I don't know where you live, the cost of the house, etc. Might be that's normal in your area and your circumstances. But I'd shop around before just accepting it.

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