Question:

Why would mortgage refinance cost more than a purchase home loan?

Answer:

Mortgage refinance can cost more than a new purchase home loan for a couple of reasons.

Most often, borrowers choose to refinance out of a subprime purchase home loan. However, most often than not, the broker or lender has provisions on the contract such as prepayment penalty. It can amount to thousands of dollars if the lender wanted to make sure borrower stayed with the subprime loan for as long as possible. The lender would like to keep the 12% loan for as long as possible. Thus, the cost of mortgage refinance can be excruciating and far exceeding the purchase home loan closing costs.

The other time when a mortgage refinance would come more expensive than a purchase loan is when borrowers are trying to refinance out of an ARM and there is no prepayment penalty to prevent them from doing so. However, they won't be able to qualify for a new home loan with rates and closing costs low enough to make the refinance worth it.

You will need to assess carefully whether your new purchase home loan will be worth the refinance by calculating the break even point.

Mortgage rates hit their lowest since 1955. Ask the home loan experts we recommend Quicken Loans how to take advantage of them.
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