How Much Does It Cost To Refinance Your House?

Refinancing your mortgage can help you meet a number of financial goals, like reducing your monthly mortgage payment, paying off your house sooner or tapping the equity in your home.

However, it’s essential to know the cost of mortgage refinancing to determine if the benefits exceed the upfront expenses.

How Much It Costs to Refinance a Mortgage

Since you’ll be replacing your current home loan, the fees can be similar to your original purchase loan. Several fees determine your mortgage refinance closing costs.

The precise refinancing fees you pay depend on the loan type, lender and local fees. But here are estimates of the most common refinancing expenses:

• Application fee: $0 to $500
• Attorney fees: $500 to $1,000
• Discount points: 0% to 3%
• Flood certification: $15 to $25
• Home appraisal: $300 to $700
• Mortgage insurance premium (MIP): Up to 1.75%
• Origination fees: 0.5% to 2%
• Recording fees: $125
• Tax service: Varies
• Title insurance and search: $700 to $900

Federal Housing Administration (FHA) streamline refinance loans have an upfront MIP of up to 1.75% of the base loan amount. However, streamline refinance loans usually don’t require another home appraisal so you can avoid that fee.

It’s possible to negotiate certain lender fees, too. For instance, you might be able to get your lender to lower or waive the underwriting and processing fees.

However, government-imposed fees and third-party expenses such as taxes, attorney review fees and home appraisals have little wiggle room.

Comparing mortgage refinance rates can help you find the best repayment term and lender fees to avoid unnecessary costs.

No-Closing-Cost Refinance

Lenders may offer a mortgage refinance without closing costs to help borrowers with limited finances. This loan type still requires paying escrow charges from property tax and homeowners insurance at closing.

While you pay minimal upfront fees, a no-closing-cost refinance usually has a higher interest rate or a higher principal balance if the lender rolls the closing costs into your loan.

Either option increases your lifetime borrowing costs as the lender finances the costs into your loan and recoups them from each monthly payment.

Tip: If possible, consider paying as much of the closing costs up front to minimize your monthly interest payment.

Average Cost to Refinance

Freddie Mac states the average cost to refinance a home loan is $5,000. However, the actual price primarily depends on your loan size and location.

Percentage-based fees will be higher for larger loans. Additionally, third-party fees or government taxes can be more in high-cost areas.

The typical mortgage closing costs are between 2% and 6% of the loan amount. So, for example, your closing costs could be between $4,000 and $10,000 on a $200,000 balance.

Use a mortgage refinance calculator to help compare your costs to the average amount.

When to Refinance Your Mortgage

It can be ideal to refinance your mortgage if you:

• Need a smaller monthly payment: Refinancing can reduce your monthly payment by qualifying for a lower interest rate, extending your repayment term or both. Bear in mind that choosing a longer term can result in higher lifetime loan costs, but it’s better than missing monthly payments.
• Want to switch to a fixed interest rate: An adjustable-rate mortgage can accrue more interest if interest rates rise. Switching to a fixed interest rate secures your monthly payment amount for the life of the loan, excluding escrow fees.
• Qualify for a lower interest rate: Shortening your repayment term from a 30-year term to 15 years can also result in a lower interest rate. While your monthly payment is higher, your total interest costs are lower and you’ll likely be debt-free sooner.
• Want to avoid private mortgage insurance (PMI): Refinancing with at least 20% home equity means you won’t pay PMI premiums. This fee waiver is unlike certain government-insured refinance loans with annual mortgage insurance fees for the entire repayment period.
• Need to access home equity: A cash-out refinance can help you consolidate high-interest debt at a competitive interest rate. However, your monthly payment and refinancing fees can be higher than a rate-and-term refinance.

When You Should Wait to Refinance Your Mortgage

Refinancing your mortgage probably isn’t worth the time or expense if you:

• Have a high break-even point: Refinancing can be too expensive if you can’t reduce your interest rate or monthly payment as much as you desire.
• Plan on moving soon: You may not reap the full benefits of refinancing if you’ll be selling your house in the near future. These funds can be more useful in making the down payment on your new home purchase.
• Have insufficient equity: Private lenders typically require a maximum loan-to-value ratio (LTV) of 80% to avoid PMI. This means you need at least 20% equity to refinance. For example, on a remaining $200,000 mortgage balance, your home appraisal value must be at least $250,000.
• Don’t want to borrow equity: An unsecured personal loan can be a better option for borrowing money at competitive rates for refinancing high-interest debt when you don’t want to use your home as collateral.
• Don’t meet the minimum requirements: Lenders typically require at least a 620 FICO score. You may also need to demonstrate earning a steady income and having a debt-to-income ratio (DTI) below 45%.

How to Lower the Cost of Refinancing

There are several ways to reduce your home refinancing costs, such as:

• Negotiate lender fees. Your lender may be willing to waive or lower certain fees. Application, origination and underwriting fees are excellent starting points.
• Consider a streamline refinance. If you have an FHA or Veterans Affairs (VA) home loan, a streamline refinance through the same agency can prevent another home appraisal and credit check. Though some lenders may have stricter appraisal and credit requirements.
• Improve your credit. A higher credit score and a lower DTI ratio can help you qualify for better rates.
• Buy discount points. Purchasing mortgage points can increase your out-of-pocket closing costs but it reduces your interest rate. Typically, one point costs 1% of the loan amount and reduces your rate by 0.25%.
• Compare refinance rates. Getting rate quotes from multiple mortgage refinance lenders can help you find the best rate and term.