Cost to refinance your home: Fees to watch out for and other tips

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In a Nutshell

The cost to refinance includes several closing fees. On average, it works out to around 3% to 6% of the payoff amount of the original mortgage.
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If you’re considering refinancing your mortgage, you’re probably wondering what the cost to refinance might be.

Closing costs on a refinance are often between 3% and 6% of the amount you still owe on your mortgage. On average, refinancing costs about $5,000, according to Freddie Mac, the federally chartered mortgage investor. You’ll be charged a number of fees to close on your new loan, most of which should be familiar from when you closed on your current mortgage.

There are potentially both pros and cons to refinancing, but having to pay a bunch of fees falls squarely on the cons list. So before deciding to refinance, you’ll want to find out what you’ll owe at closing — and then judge whether refinancing is worth the cost.

How much does a refi cost?

There is no exact, specific dollar amount for a refi since the costs are essentially a percentage of your remaining balance (see above) to refinance, although your costs could be higher or lower depending on how large your loan is and where your home is located.

Your costs will likely include these fees:

  • Origination fee. You pay this fee to the lender to cover administrative expenses such as the costs of processing your application and underwriting the loan. This fee often equals 1% of the loan amount.
  • Appraisal fee. Lenders require appraisals before issuing a home loan to determine what the home is worth. These fees vary by location and type of property, but they’re usually from $300 to $700.
  • Survey fee. This fee pays for a surveyor to measure your property and check where your home and any other structures are found on the property. You can expect to pay $150 to $400.
  • Inspection fees. Your lender might require inspections of your home’s structure or water system, or pest inspections. Some inspections may be mandated by your state. These fees are typically $175 to $350.
  • Discount points. These are fees you pay the lender when you close on your loan. Each point costs 1% of the amount of your loan, although you can also ask your loan officer if that financial institution allows you to pay partial points. For example, if the value of your loan is $100,000, one point would cost $1,000 and 1.5 points would cost $1,500. Lenders allow you to pay points in exchange for getting a lower interest rate. How much each point shaves off your interest rate varies by lender and depends on the characteristics of your loan as well as on overall conditions in the mortgage market. You and the lender agree on the number of points you’ll pay, which could be as low as zero points or as high as three points.
  • Credit report fee. The lender charges this fee to cover the costs of checking your credit. Usually, it’s under $30.
  • Government recording costs. State and local governments charge these fees for making a record of your loan. Recording fees typically start in the range of $30 to $35. 
  • Title search and lender’s title insurance. The title search fee pays for checking records to make sure there aren’t any legal claims against your property, and title insurance protects the lender in case anything is missed in the title search. These fees generally add between $700 and $900. 
  • Prepayment penalty. Paying off your current mortgage ahead of schedule sometimes triggers a fee. It’s usually equal to the interest payments you would make over one to six months.

How can I save on closing costs?

You may save money on some closing costs if you compare quotes from different service providers and choose less expensive options. Your lender decides which services you’re allowed to pick your own providers for and lists these services in Section C on the second page of your loan estimate.

Generally, you can shop for the companies that provide title search and title insurance, and you might be able to choose providers for other services such as inspections and surveys, too.

You can find service providers by searching online or asking people you know for recommendations. And your lender should give you a list of providers it works with. To compare your options, ask each company for a quote and for references you can talk to. 

You might get a better price on title insurance if you go through the company that issued your existing policy.

And if you’ve had your home appraised or your property surveyed recently, you can always ask your lender if they might accept those reports and allow you to forgo the appraisal and survey fees. Your experience may vary depending on the lender.

Can I refinance my mortgage with no closing costs?

You might be able to refinance a mortgage with zero closing costs, but you don’t necessarily save any money by doing this. That’s because mortgage lenders that don’t charge you upfront fees for closing on your loan recoup the cost of refinancing by increasing the amount of your loan or raising your interest rate.

In either case, you end up with higher monthly payments. Before taking out a loan with no closing costs, find out how much higher your loan amount or interest rate will be, and consider whether avoiding closing costs is worth it.

Also, be aware that lenders sometimes impose prepayment penalties on loans without upfront closing costs. Make sure you understand how paying off the loan early would impact you.

Next steps: Is refinancing right for me?

To see if you might benefit from refinancing, ask yourself these questions:

  • Are average rates lower than when I took out my mortgage? If so, you might be able to refinance with a better rate and smaller monthly payments.
  • Has my credit improved? A higher credit score may mean you could now qualify for a better interest rate.
  • Do I want to shorten my loan term? Refinancing can allow you to pay off your loan sooner — and a shorter term might come with a better rate. Shortening the term can also reduce the total amount you pay in interest over the life of the loan.
  • Can I remove PMI from my loan? You probably pay private mortgage insurance on your current loan if it’s a conventional loan and you made a down payment of less than 20%. If you now have at least 20% of your home’s value in equity, you might be able to refinance without PMI and save on your monthly premiums.
  • Will I save money by refinancing, even after I take closing costs into account? Divide your closing costs by the amount refinancing would save you each month after taxes to find the number of months before your savings outweigh the upfront costs. Make sure this is considerably shorter than the term of your new mortgage.

Estimate your closing costs

Use our closing costs calculator to get a better idea of how much your closing costs could be when buying a home.

About the author: Sarah Brodsky is a freelance writer covering personal finance and economics. She has a bachelor’s degree in economics from The University of Chicago. Sarah has written for companies such as Hcareers, Impactivate and K… Read more.