With mortgage rates at historically low levels, and with mortgage interest deductible against your income taxes, it is unlikely you will find a lower cost of money. But here are two considerations, which should make your decision an easier one.
If your house appraisal is such that "rolling in" your closing costs would cause you to have to pay mortgage insurance, or push you into a higher premium category for mortgage insurance, it may make more sense for you to pay closing costs out-of-pocket. After all, you want to maximize, not minimize, your savings when you refinance.
If you have enough equity in your home to avoid mortgage insurance, you would be hard-pressed to justify paying closing costs out-of-pocket. With your after-tax cost of mortgage money running in the 4% to 5% range, even the most conservative long-term investment will enable you to "beat the bank." So roll your closing costs into your loan and invest the cash you saved. Talk to your financial advisor about investment options for beating the bank.
Look for my weekly article in the Sandhills Real Estate section of the Pilot.
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