Five Tips for Keeping Closing Costs Down

Thinking of refinancing? Refinancing may make sense, given today's historically low rates. But refinancing costs money (normally around 2% to 3% of the total loan amount), including fees for an appraisal, loan origination, title insurance and much more. Closing costs can reduce the benefits of refinancing, so it's important to keep them as low as possible.

Here are five tips that can help you do just that.

1. Compare offers: By law, lenders must provide you with a good-faith estimate of their closing costs. Compare estimates from three or more lenders and use that information to negotiate a lower fee. To help narrow the field, compare the interest rate offered on a loan to its annual percentage rate (APR).

The APR calculates how much interest you'll pay per year and includes any hidden fees or other costs. It's a better representation of the true costs of a loan. For instance, Webster Bank (WBS Quote) in Connecticut offers 5.0% interest with a 5.046% APR, reflecting low closing costs. The same is true for TierOne's (TONE Quote) (TONE) offer in Kansas of 5.5% interest with a 5.537% APR. Capital One's (COF Quote) offer in New York sports 5.0% interest with 5.3% APR, suggesting high closing costs.

2. Look out for lowballs: When comparing closing-cost estimates, be suspicious of figures that seem especially low. They may include unrealistically small assumptions about certain costs. "In particular, look closely at Line 901, the first month's interest that you pay in advance," says Marc Savitt, president of the National Association of Mortgage Brokers. "A lot of originators will account for only a few days of interest -- so if you close at the beginning of the month, that number can go up in a hurry."