How Much Does It Cost To Refinance a Mortgage?
The cost to refinance a mortgage ranges from 2% to 6% of your loan amount, which is less than you’ll usually pay to close on a comparable purchase loan.
You could save thousands of dollars by refinancing your mortgage — but it’s important to first consider how much you’ll pay in closing costs versus how much you could save over time.
We’ll go through the potential costs, savings and strategic reasons behind opting for a refinance.
What does it cost to refinance a mortgage?
The exact amount you’ll pay in refinance closing costs depends on several factors, including:
- Your loan size
- Your lender
- Your location
- Your credit score
- Your available home equity
- Your loan term
- Mortgage type (fixed- vs adjustable-rate)
- Mortgage program
- Property type
- Occupancy type
What are the fees to refinance a mortgage?
Here are some of the typical costs associated with a refinance:
| Type of fee | Amount |
|---|---|
| Application fee | $75 to $500 |
| Origination fee | 0.5% to 1% of loan amount |
| Credit report fee | $50 to $80 per applicant |
| Document preparation fee | $50 to $600 |
| Home appraisal | $225 to $700 |
| Home inspection | $300 to $500 |
| Flood certification fee | $15 to $50 |
| Title search and insurance fee | $400 to $900 |
| Recording fee | $25 to $200 |
| Reconveyance fee | $50 to $100 |
| Mortgage insurance | Conventional loans: 0.15% to 1.95% of the loan amount annually FHA loans: 1.75% upfront premium 0.15% to 0.75% of the loan amount annually VA loans: 0.5% to 3.3% for upfront VA funding fee USDA loans: 1% upfront guarantee fee 0.35% annual guarantee fee |
Learn more about how to refinance your mortgage.
When is it worth it to refinance?
Before you apply for a refinance, do some quick math to ensure that it makes sense for your financial situation. To do so, calculate your break-even point to ensure the refinance benefit is worth the costs you’ll pay.
The calculation is easy: Divide your total refinance closing costs by your estimated monthly savings. The result is the number of months you’d need to stay in your home to recoup the costs.
For example, let’s say you can save $200 per month with a refinance that costs you $5,000. When you divide the $5,000 closing costs by the $200 monthly savings, the result is 25. If you stay in your home for at least 25 months — just over two years — the refinance makes sense.
A refinance calculator can tell you your break-even point as well as help you better estimate how much you can save.
5 reasons to refinance your home
There are several reasons to consider a mortgage refinance:
- Lower your 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 current loan, you could refinance and get a lower rate.
- Change your loan term. You can pay off your mortgage earlier with a shorter term or stretch out your term to get a lower monthly payment.
- Refinancing to a 15-year mortgage from a 30-year loan could help you lock in a lower rate and save on interest costs, as long as you can afford a much higher monthly payment.
- Extending your loan term, on the other hand, would lower your monthly payment but cost you more in interest over the life of your loan.
- Tap your home equity. With a cash-out refinance, you may be able to improve your loan terms and access your available home equity at the same time. 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.
- Convert an ARM to a fixed-rate mortgage. An adjustable-rate mortgage (ARM) is a loan that has a low, initial fixed rate for the first few years and then 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.
- Convert an FHA loan to a conventional loan. If you have a loan backed by the Federal Housing Administration (FHA) and made anything less than a 10% down payment at closing, you’ll pay mortgage insurance premiums for the life of your loan — unless you refinance into a conventional loan. If you have at least 20% equity when you refinance, you won’t pay private mortgage insurance costs on your new loan.
Reasons not to refinance your home
Your break-even point isn’t advantageous. If your break-even point is several years away, or is 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 be paying 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, but doing so can significantly increase how much interest you’ll pay and make your monthly payments less affordable. Your lender will either charge you a higher interest rate or add the closing costs to your new loan balance, which spreads your total closing costs over your loan’s term.
3 ways to lower your refinance costs
1. Improve your credit score
A credit score of at least 780 will typically get you the lowest rate and costs and may even make the refinance approval process easier. To boost your score, pay your bills on time, shrink your credit card balances and dispute any credit report errors you find.
2. Shop around with multiple lenders
You won’t know whether you’re getting the best refinance rates possible if you don’t comparison shop. Apply for a loan with three to five lenders and compare their refinance fees.
Not sure which lender to choose? Compare mortgage refinance rates and lenders today.3. Negotiate your refi costs
Don’t be afraid to ask for a better deal. You can negotiate some of the fees associated with refinancing — a lender might reduce or waive some fees, especially application or origination fees. And, because appraisals are no longer the default option, you may be able to get an appraisal waiver or choose a cheaper valuation process.