[DesertCat]

It's my experience all loans have closing costs, I'd double check with ING. There has to be title insurance, an appraisal fee, doc fees, etc. They may not be charging points, but that's another issue.

And don't confuse monthly payment size with cost. If you are paying 1/4 percent more on the big loan to save 1 percent on the small loan, you are paying more in interest (1/4*4/5 > 1*1/5). You want your total interest costs to be lower, so you can pay for the title insurance, etc. If total interest costs are lower, what's the payback period? If it's 10 years, it's probably not worth it. If it's less than one year it's definitely worth it.

Remember, you currently have a 3 year option on a lower rate. I.e. if interest rates come back down next year, you might find yourself with a refi that makes much more financial sense. Of course, the odds of this might be low, given the trend in interest rates and our national debt growth. It really depends upon how concerned you are about higher interest rates. A 7/1 gives you 4 more years, but if rates are only slightly higher those 4 years, you didn't get much benefit. If interest rates shoot up to 9.5%, it was totally worth it.

Homeowners insurance just pays for rebuilding a similar structure. Your land is a significant part of your value (in my case they estimated the land at 30% of my total appraised value). Talk to your insurance company and ask detailed questions about what is covered. Even $180k is $150 per SF, which seems like a pretty good budget to me, but I'm not a building contractor.