Increasing Loan Amount When Refinancing

[David Cherkowsky]

I purchased a rental property in June with 20% down and financed with a conventional loan at 8.125%. Obviously, with rates dropping I am looking to refinance to reduce that rate. I have a loan estimate from a lender that increases the loan amount by ~$3500 which essentially cancels out the out of pocket expenses, and reduces my rate to 7.5%. This reduces my monthly payment by ~$100 a month.

Am I correct to think that I am essentially paying $3500 for this refinance? If it were zer0 dollars out of pocket without increasing the loan amount, it seems like a no brainer, but increasing the loan has me skeptical. I'm looking for thoughts from more experienced people than myself to make sure I'm thinking through this correctly.

Thanks in advance for the help.