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Refinance Closing Costs : All You Need to Know

  • Finance
  • Vanessa Norris
  • 12 minutes

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If you want to replace your current mortgage with a better one, make sure you pay attention to the estimated closing costs for refinancing. If you know how much it will cost you all together to refinance your mortgage, you can decide if you’re really getting the best deal. Read to know more about refinance closing costs. 

What do you mean by refinance closing costs? 

Refinance closing costs are the fees and costs you must pay when you pay off your old mortgage and get a new one. Most of the time, they include some of the same fees you paid initially when you first got your mortgage. There is no set method or formula for figuring out refinance fees. Some of these fees vary from lender to lender. It could also be based on a percentage of your loan amount. There are also “recurring” closing costs like homeowners’ insurance and property taxes. 

What is the cost to refinance your mortgage? 

Most of the time, the costs of closing on a mortgage refinance are between 2% and 5% of the loan amount. Since closing costs for a refinance depend in part on the amount of the loan, they can be very different from one borrower to the next. It could be higher or lower than average depending on the value of your home, how much you still owe on your mortgage, and whether or not you’re taking cash out. 

How to reduce the cost to refinance 

  • Boost your credit score 

When you got your first mortgage, you aimed for a certain credit score. It’s the same for refinancing. Know that the interest rate will be lower the better your credit is. Before you try to refinance, work on improving your credit score so you can get the best rate you can. Check your credit report and look for mistakes. If you find a mistake, you can ask the credit reporting agencies to fix it. Pay all of your bills on time, keep your credit card balances far below the limit, and, if you can, pay more than the minimum amount. 

  • Compare mortgage offers and rates 

Compare the refinancing programs offered by different banks and mortgage lenders. You could also work with a mortgage broker to get a variety of offers. It’s also a good idea to start with the lender you already have. In fact, some lenders let customers refinance their loans for free. If your bank or lender won’t let you save money, you might want to look for a new bank that gives deals to people who are new to the bank. 

Be sure to compare the monthly payments and how interest is calculated on the balance. Most mortgages calculate the interest at the end of the month, which is more accurate, but it doesn’t hurt to double-check. Pay close attention to the APR to get an idea of how much you should be paying. 

  • Negotiate closing costs 

As with your first mortgage, look closely at your lender’s loan estimate to see how the costs are broken down. If you’ve looked around and have more than one refinance offer, you may be able to save money by negotiating closing costs. 

If some fees, like the application fee, seem unusually high, you should ask the lender if they can be cut down. Remember that the lender wants your business, so if you show you’re willing to walk away from the offer, it might be willing to give in. 

  • Ask for fee waivers 

In the same way, ask your bank or lender if the application fee or credit check fee can be waived or lowered. You can also check to see if you can skip a new home appraisal or property survey if you just had one done recently. If you already do business with your lender, they might be willing to work with you. 

  • Assess whether to buy mortgage points 

If you are looking to reduce your closing costs, you might want to consider whether buying a mortgage or discount points is worth it. Buying points lowers your interest rate. But you should only do it if you plan to keep the house for a long time. And if you don’t want to refinance again, even if it’s to pay for a major renovation in the future.  

  • Go with your original title insurer 

In many states, title rates are regulated, but you can try to save money on title services by asking your current title insurance company how much it would cost to reissue the policy for your refinanced loan. It might be less expensive to do this than to start over with a new company or policy. Also, think about getting an owner’s policy now if you didn’t get one the first time. 

  • Consider a no-closing cost refinance 

A no-closing-cost refinance might be a good idea if you don’t have much money. The name is a bit misleading because this isn’t free, but you won’t have to pay any fees when you close. Instead, the lender will either raise your interest rate or add the closing costs to the new loan. The benefit of a no-closing-cost refinance is that you don’t have to pay too much while you sign the loan.  

This can make a big difference if you’re doing a cash-out refinance. By not paying closing costs upfront, you can pay for whatever you want to pay for now, like a wedding or a home renovation. On the other hand, you might have to pay more over the course of the loan. Most of the time, refinancing isn’t worth it if you can’t pay the closing costs either all at once or over time. 

Common fixed mortgage refinance closing costs 

Type of fees  Cost 
Loan application fee  $75 to $500 
Home appraisal  $225 to $700 
Credit report fee  $10 to $100 per person 
Document preparation fee  $50 to $600 
Title search/insurance fee  $400 to $900 

 

How are the refinance closing costs calculated? 

Most of the time, closing costs are between 2% and 5% of the loan amount. This is quite a range, and it can be influenced by the following: 

Your mortgage lender 

Lenders charge different fees upfront, so some refinance closing costs will be more expensive than others. It is not necessary for you to refinance with your current lender. Instead, you should look for a new lender with the lowest interest rate and fees. 

Your lender credits 

Some lenders will give “lender credits” to borrowers. In exchange for paying a slightly higher interest rate, this can get rid of the loan origination fee and possibly other closing costs. Getting lender credit can reduce or even get rid of your upfront costs. Eventually, the higher rate will cost you more in the long run. 

Interest rate 

From the date of closing until the first of the following month, your lender will charge mortgage interest on a prorated basis. This payment is due at closing, and the exact amount is based on your interest rate. 

Discount points 

They are the opposite of lender credits. They are also called “mortgage points.” You pay this one-time fee at closing to get a lower interest rate. Usually, each discount point costs 1% of the loan balance and lowers your interest rate by about 0.25 percentage points. 

Your location 

Just like with your first home loan, the closing costs of a refinance include property taxes and insurance that have already been paid. The cost of your prepaid property taxes will change depending on where you live. But you don’t really pay more taxes and insurance when you refinance because your current lender gives you back any money it has set aside. 

Can you negotiate closing costs when refinancing? 

Some of the costs of refinancing are negotiable, especially lender fees that your mortgage company charges directly. You can usually negotiate the following costs when you refinance: 

  • Costs to apply for a loan 
  • Fees for starting a loan 
  • Insurance costs 
  • Insurance premiums for homeowners  
  • Title insurance 

But there are some costs that can’t be changed. Your loan officer probably won’t be able to lower fees like the survey, home appraisal, or recording fees that are charged by third parties. These fees are just passed on to you, the borrower, by the lender. 

Should you pay the refinance closing expenses yourself? 

When deciding how to pay your refinance closing costs, you should look closely at your finances. If you have enough equity in your home, you might want to add the costs of refinancing to your mortgage balance instead of paying for them out of pocket.  

This is also a good idea if you don’t have a lot of money saved or don’t want to use up your savings when you refinance. But if you add closing costs to your loan, your loan balance, your monthly mortgage payment, and the amount of interest you pay will all go up. So, if you have the money, it might be better to pay your closing costs out of pocket and be done with it. 

What about no-closing-cost refinances? 

Lenders may be willing to give you a new loan with no fees for refinancing. Even though a no-closing-cost refinance may save you money at closing, you will end up paying for it over the course of your loan. A no-closing-cost refinance simply means that your lender increases your interest rate or adds the closing fees to the amount of your new loan. If you’re refinancing to reduce your monthly payments and interest costs, a no-closing-cost loan may not be worth it unless you plan to sell your house soon and want a quick break-even point. 

How to refinance with no closing costs 

When you refinance, you might not have to pay any closing costs at all. But you need to know the pros and cons of no-closing-cost refinance methods because they can end up costing you more in the long run. 

Add the costs of closing into your loan 

If you have enough equity in your home, your lender might let you add your closing costs to your mortgage loan. With this method, you don’t have to pay anything upfront. On the other hand, putting these up-front costs into your new mortgage raises your loan balance, which means you’ll have to pay interest on this extra amount.  

This can mean paying thousands more over the life of the loan. Still, putting closing costs into your loan can make sense if you save a lot of money on your monthly mortgage payment. This is especially true if you want to save money each month, which is the main reason you want to refinance. 

Ask the lender to cover the costs of closing

Another way to refinance without closing costs is to ask the lender for credits. This keeps your out-of-pocket costs low, but you’ll have to pay a higher mortgage rate in exchange. Most of the time, lender credits are better for people who will only keep their new mortgage for a few years.  

After that, the higher cost of interest can start to outweigh the money you saved up front. If you want to keep your refinanced loan for a long time, adding the closing costs to the mortgage balance might make more sense. 

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Bottom line 

Closing costs on a refinance can be significant. So, shop around for offers and compare loan estimates to fully understand the costs involved. It’s also worth talking with the lender, as closing charges can occasionally be waived or reduced. When interest rates continue to grow in the current market, do some calculations to ensure that you can break even and that the time and money you’d spend are worthwhile. 

FAQs 

Why does refinancing cost so much? 

Closing costs on a refinance can be affordable or hefty as it is a collective of many fees that differ with the loan amount. 

Can closing costs be a part of refinance loan? 

Sometimes mortgage lenders let borrowers put the closing costs of a new loan into the loan itself. But remember that putting closing costs into your new loan will increase the total amount you owe. This is only an option if the homeowner has enough equity in their home to back a larger loan. If you don’t have enough equity in your home, a bigger loan may be more than the loan-to-value (LTV) ratio of the lender. 

Are closing costs the same when you refinance? 

When you close on a refinance, you pay closing costs like when you got your first loan. You might have to pay for an appraisal, a lawyer, and title insurance as part of the closing costs. 

What are normal refinance fees? 

In America, the average cost to close on a mortgage refinancing is $4,345. These costs may be different depending on the lender and where the property is. 

How can I avoid closing costs on a refinance? 

You can ask your lender for credits. This keeps your out-of-pocket costs low, but you’ll have to pay a higher mortgage rate in exchange. Most of the time, lender credits are better for people who will only keep their new mortgage for a few years. 

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