Images by Getty Images; Illustration by Issiah Davis/Bankrate
Key takeaways
Refinancing your mortgage typically costs between 2 and 6 percent of the new loan amount. These closing costs might include fees for origination, a home appraisal and title services.
You can save on the cost of refinancing by boosting your credit score, comparing mortgage terms and rates and negotiating closing costs.
Before refinancing, figure out when you’ll break even — the point at which your monthly savings surpasses the upfront cost.
Refinancing your mortgage can lower your monthly payment, turn your equity into cash or change up your loan type and term. The process isn’t free, however — there are upfront expenses similar to when you first got the mortgage. If you’re deciding whether to refinance, make sure it’s worthwhile given the costs.
How much does it cost to refinance?
Your refinance closing costs vary by the size of your loan and where you live, but generally, you can expect to pay between 2 percent and 6 percent of the new loan balance. For example, if you’re refinancing a $150,000 mortgage, you might pay between $3,000 and $9,000 in closing costs. Here’s a breakdown of common closing costs:
Closing costs
Fee
Application fee
Up to $500
Origination and/or underwriting fee
$300 – $500
Recording fee
$25 – $250, depending on location
Appraisal fee
$300 – $500
Credit check fee
$25
Title services
$300 – $2,000
Survey fee
$2,300 on average
Attorney/settlement fee
$500 – $1,000
Along with closing costs, you’ll pay a new interest rate. This rate depends on many variables, including your:
Credit score: If you have good or excellent credit, you’ll generally receive a better interest rate.
Lender: Lenders have different approaches to pricing loans and underwriting, which influence your rate.
Type of refinance: You’ll typically pay a higher rate on a cash-out refinance than you will on a standard rate-and-term refinance.
Loan size and term: The smaller your loan and the shorter the term, the better your rate will be, in general.
Property type: If you’re refinancing a primary residence, for example, you’ll typically receive a lower rate than you would if you were refinancing an investment property.
How much does it cost to refinance government-backed loans?
Government-backed loans — including FHA, VA and USDA loans — all offer streamline refinance options for qualifying borrowers that may cost less than a typical refinance. Streamline refinances have fewer hoops to jump through. For example, you may not need a credit check or an appraisal.
To qualify for this option, you must not use the refinance to cash out equity.
On the other hand, government-backed loans come with their own fees. For instance, VA loans require you to pay a funding fee when you refinance, and FHA loans may require you to pay mortgage insurance premiums (MIP).
How to lower the cost to refinance
If you’re refinancing to lower your monthly payment, paying less to refinance helps you realize those savings more quickly. You can lower your refinance costs by:
1. Boosting your credit score
Just as first mortgages have credit score requirements, you’ll need to meet credit score minimums to refinance, too. The better your credit, the lower your refinance rate. You can boost your credit by paying off debt, among other strategies.
2. Comparing mortgage offers and rates
To score the best possible rate, compare several mortgage refinance lenders. To get a fuller sense of the loan’s cost, look at the annual percentage rate (APR), which includes interest and fees. A mortgage broker may help you get a wider range of quotes. Always get a quote from your existing lender, too, in case it offers a lower-cost refinance or other repeat customer benefits.
3. Negotiating closing costs
As with your first mortgage, look closely at the loan estimate from your lender. You might save money by negotiating closing costs, especially if you’ve shopped around and have more than one refinance offer. You can use other quotes to check for unusually high fees as well.
4. Asking for fee waivers
In the same vein, ask your bank or lender if it will waive or lower the application fee or credit check fee — especially if you’re an existing customer. You may also be able to forgo a new home appraisal or property survey if you’ve recently had one done.
5. Choosing your original title insurer
In many states, title rates are regulated, but it may cost less for your title insurance company to reissue your policy for your refinanced loan than it would to start over with a new company or policy.
6. Considering a no-closing cost refinance
If you’re low on cash, consider a no-closing cost refinance. The name is a bit deceiving, as this refinance isn’t free of closing costs; you simply won’t pay the fees at closing. Instead, the lender will either raise your interest rate or fold the closing costs into the new loan.
Calculating your break-even point
If you’re refinancing to lower your monthly payment, it’s essential to figure out your break-even point — when your savings outweigh your closing costs.
Say your new, lower rate will decrease your monthly payment by $100 every month and refinancing costs you $3,000. That means it will take 30 months — or 2.5 years — before you realize the savings. If you don’t plan to sell or refinance in that time, it could be worth it to refinance now.
FAQ
Why refinance your mortgage?
How does refinancing your mortgage work?
Will your monthly payments decrease when you refinance?
