Money Influencer Vivian Tu: Remember This 1 Rule Before You Refinance Your Mortgage
Written by
Nicholas Morine
Edited by
Angela Corry
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Boasting over 3.1 million followers on Instagram — and described as someone who “emphasizes the importance of making intelligent and holistic investments in finances and all areas of life” by Forbes — money influencer Vivian Tu is considered a fount of knowledge regarding financial health.
Your Rich BFF Vivian Tu: Remember This Before Refinancing Your Mortgage
In a recent TikTok video shared with her audience, Tu broke down her one simple rule for those considering refinancing their mortgage.
“A refi on your house likely doesn’t make sense unless your new loan rate is at least 2% less than your original one. So if your original mortgage rate is 7%, you don’t refi until you can get 5% or better. This is because refinancing can cost 5% to 7% of a loan’s principle and comes with a bunch of other fees,” Tu said.
“So let’s walk through the math: Say you get a half-a-million dollar home, 20% down, 7% mortgage rate. You’d have borrowed $400K but spent almost $1 million to pay the loan off. But if you refi down to 5% you’d spend $35K on refi costs, save $185K and net about $150K,” she added.
Victoria Araj, team leader for Rocket Mortgage, shared similar information reinforcing Tu’s point. According to Araj, closing costs could range from between 3% to 6% — close to Tu’s estimate — and like the finance influencer, Araj enumerated a number of potential costs attached to mortgage refinancing:
- Application fee: Some lenders charge a flat application fee, and in certain cases, you’ll be on the hook for the fee even if your application is denied.
- Appraisal fee: Before you’re approved for a refi, an appraisal may be required. Araj suggested that this could cost somewhere between $600 to $2,000.
- Attorney fee: Some states require that an attorney review and file paperwork concerning your loan. This fee is highly variable.
- Title search and insurance: A lender may also require a new title search as well as title insurance when you refinance your mortgage. Title insurance typically costs between 0.5% to 1% of a home’s purchase price.
- Loan origination fee: This is the fee attached to the cost of processing your application, and generally costs 0.5% to 1% of the loan amount.
Other Tips When You’re Considering Refinancing Your Mortgage
Shopping around for rates offered by different lenders — or even consulting the same lender at different times — can pay off. Sam Khater, chief economist at Freddie Mac, made the case for this approach, according to NPR.
“Even identical borrowers applying on the same day with the same lender will often get different rates — and it’s hard to figure out why,” he said. “You just have to make sure you get enough quotes, because one of them may come in that’s lower than the others.”
Using a mortgage calculator is also prudent, as Araj advised in a separate report from Rocket Mortgage. The company provides its own calculator, but Fannie Mae — as well as several other reputable parties, such as Zillow — have their own free calculators to allow for comparison.
Taking the time to walk through the associated costs related to any potential refi could end up saving you a great deal of money, whether or not you eventually decide to go through with a rate-and-term mortgage refinancing.
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