If you’re thinking about replacing your existing mortgage with a new one, it’s important to understand the fees you’ll pay to make it happen. The cost to refinance a mortgage depends on various factors, including your loan size and lender, but you generally won’t pay more than 6% of your total loan amount. Making sense of these costs can help you decide whether refinancing is worth it.
Refinancing your home can help you secure a lower interest rate, reduce your monthly payments, or tap into your home equity. But before you decide to refinance, it’s important to understand the closing costs involved. These upfront fees can really add up, so you’ll want to make sure the refinance makes financial sense given the costs.
In this comprehensive guide, we’ll break down exactly how much you can expect to pay in closing costs when refinancing your mortgage. We’ll also provide tips for reducing these expenses so you can maximize your savings
What Are Closing Costs on a Mortgage Refinance?
Closing costs are the various fees charged by lenders and third parties to finalize and fund your new refinanced mortgage These costs are similar to the expenses you paid when you originally bought your home,
Closing costs on a refinance typically range from 2% to 6% of your new mortgage loan amount. So if you refinance a $200,000 loan, you can expect to pay $4,000 to $12,000 in total closing costs.
Here’s a breakdown of the most common refinance closing costs:
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Origination fee – This covers the lender’s administrative costs for processing your new loan. It ranges from 0.5% to 1% of the loan amount.
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Appraisal fee – The lender hires an appraiser to assess your home’s current value. This usually costs $300 to $500.
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Credit report fee – The lender will pull your credit report from one or more of the three major credit bureaus. This runs $25 to $100 per report.
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Title fees – This includes title search, title examination, title insurance, and more. It often totals $700 to $2,000.
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Recording fees – The county charges a fee to officially record your new mortgage. This is generally $25 to $200.
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Survey fee – If required, a surveyor will map your property lines and dimensions. Expect to pay $300 to $500.
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Taxes and insurance – You’ll need to prepay property taxes and homeowners insurance premiums at closing.
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Points – You can pay points, or upfront interest, to lower your mortgage rate. Each point equals 1% of the loan amount.
How Much Are Closing Costs on a $200K Refinance?
As a real-world example, here’s an estimate of typical closing costs if you refinanced a $200,000 mortgage:
- Origination fee: $1,000
- Appraisal: $450
- Credit report: $40
- Title fees: $1,200
- Recording fee: $100
- Taxes and insurance: $2,500
- Total closing costs: $5,290
So you’d pay about 2.6% of the loan amount in upfront closing fees to refinance a $200,000 home loan. Of course, your actual costs will depend on your lender, location, loan program, and other factors.
How to Reduce Refinance Closing Costs
Fortunately, there are several ways to minimize the sting of closing costs when refinancing:
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Shop around – Compare quotes from multiple lenders to find the best deal on refinance fees. Mortgage brokers can also help you access a wider range of lenders.
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Negotiate costs – Don’t be afraid to ask your lender to reduce or waive certain fees like the origination fee. You have more leverage if you’re already a customer.
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Boost your credit – A higher credit score qualifies you for lower rates and costs. Pay down debts and maintain on-time payments to improve your score before applying.
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Pay with equity – If you have equity, you can do a “no closing cost” refinance rolled into your new loan balance. You’ll pay interest on the fees over time instead of upfront.
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Lower your rate – Paying discount points to buy down your rate also reduces lifetime interest costs, offsetting closing costs.
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Choose the same title company – Ask for a reissue rate from your original title insurer instead of a more expensive new policy.
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Get a waiver – See if you qualify to waive the appraisal or other requirements to avoid those fees.
When Do Refinance Closing Costs Make Sense?
Before refinancing, always calculate your breakeven point – the number of months it will take for your savings to surpass closing costs.
For example, if you save $200 per month but pay $4,000 in fees, your breakeven is 20 months. As long as you stay in the home long enough to recoup the costs, refinancing can be a smart move.
Use a refinance calculator to determine your breakeven timeframe. If it’s longer than your expected ownership, the upfront expense may not justify the refinance.
The Bottom Line
When refinancing your mortgage, expect to pay closing costs ranging from 2% to 6% of your new loan amount. While this can equate to thousands of dollars, the long-term savings often make it a sound financial decision. Carefully weigh the costs against your monthly and lifetime savings to see if refinancing aligns with your home financing goals.
Reasons not to refinance your home
Your break-even point isn’t advantageous. If your break-even point is several years away, or it’s closer but you have plans to move before it hits, you shouldn’t refinance.
Your long-term savings aren’t significant. Since refinancing restarts your mortgage term, it can add years to your mortgage payoff date — additional years during which you’ll also pay additional interest. In some cases, even a lower interest rate can’t overcome this hurdle.
You can’t pay refinance closing costs. “No-closing-cost” refinance loan programs allow you to roll your closing costs into the loan. However, while it may keep you from spending a chunk of money upfront at closing, it’s not free money — you actually end up paying for it over the life of your loan.
Learn more about when refinancing may make sense, versus when it could hurt more than help you: When Should I Refinance My Mortgage?
Reasons to refinance your home
You want a lower interest rate. A loan with a lower mortgage rate reduces your monthly mortgage payment and lifetime interest costs. If your credit history has improved since you took out your existing loan, you could refinance and potentially secure a lower rate.
You want to change your loan term. You can pay off your mortgage earlier with a shorter term — assuming you can afford the higher monthly payment. Alternatively, you can stretch out your term to get a lower monthly payment.
You want to convert an ARM to a fixed-rate mortgage. An adjustable-rate mortgage (ARM) is a loan with a low initial fixed rate for the first few years, but changes based on market factors. If rates spike over time, your payments can become unaffordable. Converting your ARM to a fixed-rate loan gives you the stability of a predictable monthly payment.
You want to tap your home equity. With a cash-out refinance, you’ll take out a new mortgage for a larger amount than you currently owe and pocket the difference in cash to accomplish other financial goals, like making home improvements or covering college costs. Use our cash-out refinance calculator to crunch the numbers and determine whether this option makes sense.
How to Pay Closing Costs When Refinancing Your Mortgage
FAQ
How much are closing costs on a refinance?
You pay closing costs and fees when you close on a refinance – just like when you signed on your original loan. You might see appraisal fees, attorney fees and title insurance fees all rolled up into closing costs. Generally, you’ll pay about 2% – 6% of your refinance loan’s value in closing costs.
Why are closing costs so high on a refinance?
Why does refinancing cost so much? Closing costs typically range from 2 to 5 percent of the loan amount and include lender fees and third-party fees. Refinancing involves taking out a new loan to replace your old one, so you’ll repay many mortgage-related fees.
What are the real costs of refinancing?
Refinancing costs
The total cost to refinance your mortgage will be determined by your lender, your credit score and your location, but you can expect to spend 3%–6% of your loan principal. Refinancing costs include your loan origination fee and the following: Government recording costs. Appraisal fees.
Are closing costs negotiable when refinancing?
Yes, closing costs — and other mortgage terms — are negotiable when refinancing. Get quotes from different lenders and use these quotes to negotiate the best deal. Ask these lenders questions if you’re unsure what a particular closing cost is.