How Much Does It Cost to Refinance a Mortgage?
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.
Key takeaways
- You’ll pay various fees to refinance a mortgage, including flat fees (like application and credit check fees) and percentage-based charges (such as origination fees).
- A higher credit score or larger down payment can help reduce the cost of refinancing your mortgage.
- Some loan programs, including the FHA streamline refinance program, may have lower closing costs.
How much 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, lender, location and mortgage program. You’ll typically pay mortgage refinance closing costs ranging from 2% to 6% of your loan amount. For example, if you refinance a $200,000 mortgage, your total closing costs could fall between $4,000 and $12,000.
Refinancing involves a few different types of fees:
- Flat fees: Fixed or “flat” refinance fees are the same regardless of your loan amount.
- Percentage-based fees: These fees are based on a percentage of your loan amount.
- Recurring fees: These closing costs relate to normal homeownership expenses, such as homeowners insurance and property taxes.
Common fixed mortgage refinance closing costs
| Refinance cost | How much? |
|---|---|
| Application fee | $75 to $500 |
| Home appraisal fee | $225 to $700 |
| Credit report fee | $50 to $80 per applicant |
| Document preparation fee | $50 to $600 |
| Title search and insurance fee | $400 to $900 |
| Recording fee | $25 to $200 |
| Reconveyance fee | $50 to $100 |
| Flood certification fee | $15 to $50 |
Application fee
Lenders may charge this fee to start the mortgage application process. The actual fee amount will vary by lender, and some banks require you to pay it upfront. Some lenders will waive the fee once the loan process is complete. Most lenders, however, won’t refund the fee if they reject your application.
Home appraisal fee
Many lenders order a home appraisal, whether you’re purchasing or refinancing a home. Banks can’t determine how much you can borrow until they know your home’s true market value. In some cases, however, you may not need an appraisal for your refinance.
Credit report fee
It costs money to pull a copy of your credit report and scores, and lenders want to see them before they proceed with your application. Lenders pull several different versions of your credit report, so prices will vary. They often use FICO credit scores.
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Document preparation fee
Your lender may charge this fee to create and send the documents you sign at closing.
Title search/insurance fee
You’ll need a new lender’s title insurance policy when you refinance your mortgage. You can shop for title insurance on a refinance, so make sure you haggle over the title insurance fees to get the best deal available to you.
Recording fee
When you refinance, you may need to pay recording fees to state or local government agencies to document the transaction. These fees vary based on your location.
Reconveyance fee
A reconveyance fee covers the administrative cost of removing a lien from your property title after the loan is paid off. It essentially “clears” your title, confirming the previous lender no longer has a legal claim to your home.
Flood certification fee
Your lender charges this fee to check whether your property is in a flood zone. If it is, you may need to purchase flood insurance.
Common percentage-based mortgage refinance closing costs
| Refinance cost | How much? |
|---|---|
| Loan origination fee | 0.5% to 1% of loan amount |
| Mortgage points | 1% of the loan amount per point |
| Mortgage insurance premiums |
|
Loan origination fee
The loan origination process costs lenders money, so think of the fee as your way of telling the bank you intend to proceed with the process. This fee often includes the lender’s cost of paying a loan officer to help originate the loan and compensating the underwriter for assessing your ability to repay it.
Mortgage points
Also known as discount points, you can pay mortgage points upfront at closing for a reduced mortgage interest rate. Each point equals 1% of the loan amount and can lower your interest rate by as much as 0.25 percentage points.
Mortgage insurance premiums
If you have 20% equity in your home, you won’t pay any private mortgage insurance (PMI) to cover the risk you might default on a conventional loan. However, loans backed by the Federal Housing Administration (FHA loans), U.S. Department of Veterans Affairs (VA loans) and U.S. Department of Agriculture (USDA loans) require mortgage insurance, or some type of guarantee fee, regardless of how much equity you have.
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 estimate your break-even point and how much you can save on your 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.
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?
10 ways to reduce refinance closing costs
- Get your credit in the best possible shape. 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, dispute any credit report errors and avoid applying for new credit.
- 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.
- 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.
- Reduce your debt before you refinance. Pay off credit card debt and refinance that auto or student loan before refinancing to avoid paying a higher rate or bringing extra dollars to the closing table.
- Borrow less of your home’s value. Lenders look at your loan-to-value (LTV) ratio when determining your interest rate, and the more you borrow, the riskier they consider the loan. You’ll also avoid mortgage insurance costs if you borrow 80% or less of your home’s value with a conventional loan.
- Avoid cash-out refinances if you can. Converting home equity to cash with a cash-out refinance is a great way to clear out credit card balances or make home improvements. However, since you’re taking out a larger loan, your closing costs may be higher.
- See if you’re eligible for a streamline refinance program. If you currently have an FHA, VA or USDA loan, see if you’re eligible for an FHA streamline, VA interest rate reduction refinance loan (VA IRRRL) or a USDA streamline assist refinance. These programs don’t require an appraisal and charge a lower mortgage insurance fee than regular government refinance programs. Plus, as an added bonus, you won’t need to verify your income.
- Work with the same title insurance company. You can save money on the lender’s title insurance policy by asking for a reissue rate, which is a discounted policy amount you can get for working with the same title insurance company used for the original loan.
- Review your loan estimate. Go over your loan estimate with a fine-tooth comb and ask for clarification about any costs that are unclear. You can also shop around for certain services (found on Page 2 of the loan estimate) to find the best deal.
- Try for an appraisal waiver. Ask your lender if you qualify for an appraisal waiver — if so, you could save a couple of hundred dollars on your refi.
See today’s refinance rates and top lenders.
Frequently asked questions
Mortgage refinancing rates currently average 7.42% for 30-year fixed loans and 6.85% for 15-year fixed loans.
If refinancing would lower your monthly payment, reduce your mortgage rate and save you money over the course of your loan, it may be worth considering. However, it’s important to understand the closing costs and how they impact your potential savings.
The refinancing process can take up to 50 days, though it varies by loan type. For example, while conventional refinance loans take about 42 days to close, FHA loans can take about 46 days and VA loans can take 40 to 50 days.