What Are the Costs of a Mortgage Refinance
Mortgage refinancing offers homeowners the chance to reshape their financial future, but like any financial decision, it comes with associated costs. Understanding these costs is crucial to maximizing the benefits of your refinancing journey.
In this article, we’ll break down the various costs of refinancing home loans, explain how to lower them, and guide you through the steps to start the process with confidence.
Discover how Rate’s competitive mortgage refinance can help you achieve your goals.
How Much Does It Cost to Refinance?
How much it costs to refinance a house depends on several factors like:
- Loan amount: The loan amount is simply the total amount of money you're borrowing from a lender.
- Location: Location refers to where your home is physically located. This can actually affect your mortgage options, since different states or regions have varying rules, property values, and costs of living. Where you live can also impact things like property taxes and insurance
- Lender: Your lender is the financial institution or company that provides you with the loan. They’re the ones who evaluate your financial situation and offer you loan terms. It’s important to choose a lender that fits your needs, as different lenders may offer different rates and fees.
- Type of refinance: The type of refinance refers to the kind of refinancing option you choose. For example, you might go for a rate-and-term refinance to lower your interest rate, or a cash-out refinance if you want to tap into your home equity for some extra cash. The right choice depends on your financial goals.
On average, closing costs for a mortgage refinance range between 2% and 6% of the loan principal.
For instance, if you’re refinancing a $225,000 mortgage, you could expect to pay between $4,500 and $13,500 in closing costs. The costs can vary based on the specifics of the loan and location.
What Types of Fees Are Included in a Mortgage Refinance?
When you refinance a mortgage, you’ll encounter several types of fees, many of which are similar to those charged during the original mortgage process. They include:
Application Fee
This fee covers the cost of processing your refinance application. It’s often non-refundable, even if your request gets denied. You’ll usually pay between $75 and $550.
Origination/Underwriting fee
This fee compensates the lender for evaluating and processing the loan and is usually up to 1.5% of the loan principal. For instance, if your loan is $225,000, this fee could range from $2,250 to $3,375.
Recording Fee
Local governments charge a recording fee for processing the documentation related to the refinance. This fee varies widely by location but mostly ranges from $25 to $250.
Appraisal Fee
An appraisal fee is what you pay to have a professional appraiser determine the current market value of your home before refinancing. It helps the lender confirm that your home is worth enough to support the loan.
Depending on the location and complexity of your property, this fee can range from $300 to $2,000.
Credit Check Fee
A credit check fee is what you pay when a lender pulls your credit report to assess your creditworthiness during the refinancing process.
It gives them a snapshot of your financial history and helps determine your loan terms. The fee usually ranges from $10 to $100 per person.
Title Services
The Title Services fee covers the cost of a title search and title insurance. A title search ensures there are no legal claims or disputes over your property, while title insurance protects the lender in case any issues come up later. This fee typically ranges from $300 to $2,000, depending on your location and property.
Survey Fee
A survey fee is charged when a professional surveyor is hired to confirm the boundaries of your property.
This might be required during the refinancing process to ensure there are no disputes over your property lines. The fee usually ranges from $140 to $400, depending on the size and complexity of the property.
Attorney Fee
In some states, you must hire an attorney to handle the legal aspects of refinancing. These fees can range from $500 to $1,000, depending on state regulations.
Can I Lower the Cost of My Mortgage Refinance?
Yes, you can. Refinancing your mortgage doesn’t have to break the bank, and there are several strategies you can use to minimize the costs.
From negotiating with your lender to exploring different types of loans, there are smart moves you can make to keep more money in your pocket. Whether it’s finding ways to reduce fees, improving your credit score for better rates, or timing your refinance during a low-interest period, a little preparation can go a long way.
Here are several strategies you can use to lower the cost of your mortgage refinance:
1 - Improve Your Credit Score*
Your credit score plays a significant role in determining the interest rate you’ll be offered. A higher credit score can lead to a lower interest rate, which can result in substantial savings over the life of the loan.
Boosting your credit score before refinancing by paying down debt or correcting errors on your credit report can help you secure a better deal.
2 - Consider a No-Closing-Cost Refinance
If you don’t have the cash on hand to cover refinance closing costs upfront, you might consider a no-closing-cost refinance, which generally means that lenders will not charge you up front costs but will work those closing cost fees into your overall loan.
For example, in this scenario, the lender may either increase your interest rate or roll the closing costs into the loan principal, allowing you to pay them over time. However, this option could lead to higher overall costs due to the increased interest paid over the loan’s term.
3 - Use the Same Third-Party Services
If you’re refinancing the same property as your original loan, consider using the same title company or attorney. These professionals may offer discounts to repeat customers, helping to lower your overall cost to refi mortgage.
4 - Evaluate Whether to Buy Mortgage Points
Mortgage points allow you to prepay interest in exchange for a lower interest rate. While buying points increases your upfront costs, it can lead to significant savings over the life of the mortgage if you plan to stay in your home long-term.**
For example, buying one point, which normally costs 1% of the loan amount, could reduce your interest rate by 0.25 percentage points.
5 - Ask for Fee Waivers
Some lenders may be willing to waive certain refinance fees, such as the application fee or credit check fee, especially if you’re an existing customer.
Additionally, if you’ve recently had a home appraisal or property survey, you might be able to forgo these costs by providing the recent documentation to your lender.
How Do I Start the Mortgage Refinance Process?
If you’re ready to take the plunge, here’s a step-by-step guide to help you navigate Rate’s mortgage refinance process:
1. Determine Whether You Qualify
Before you start, it's important to ensure you meet the necessary qualifications such as your credit score, home equity, and debt-to-income ratio as they will play a crucial role in your eligibility. If you’re considering a cash-out refinance, having a significant amount of equity in your home is a must.
Not sure if you qualify? Our team of expert refinance consultants can help you assess your situation and guide you toward the best options available.
2 - Fill Out Our Application to Refinance
This step is similar to applying for your initial mortgage but without the need for a purchase agreement. You’ll need to provide documents such as:
- Recent pay stubs
- W-2s
- Bank statements
With Rate’s user-friendly online application process, you can upload your documents securely and track your application’s progress in real-time. Plus, you’ll have the option to lock in your interest rate to protect against potential rate increases while you close on your loan.
3 - Go Through Underwriting
After submitting your application, we’ll initiate the underwriting process.
During this stage, we will verify your financial information and ensure you meet the loan’s requirements. This includes verifying your income, assets, credit history, employment status, and more. Underwriting also involves assessing your debt-to-income ratio and the value of your property to determine the level of risk.
4 - Get a New Home Appraisal
A home appraisal is used to determine the current market value of your property. If the appraisal comes back lower than expected, Rate’s experts can help you explore alternative solutions to keep your refinance on track.
5 - Review Your Closing Disclosure
Once underwriting and the appraisal are complete, we will provide you with a Closing Disclosure. This document outlines the final terms of your loan, including the closing costs.
6 - Close on Your New Loan
The final step is closing. At this stage, you’ll sign off on your new loan and finalize the refinance. Bring a valid ID, a cashier’s check for your closing costs (if applicable), and your Closing Disclosure. If you’re opting for a cash-out refinance, your funds will be available a few days after closing.
Ready to Refinance with Rate.com?
Refinancing your mortgage doesn’t have to be overwhelming, especially when you have a trusted partner like Rate by your side.
With our streamlined application process, expert guidance, and flexible refinance options, we make it easier than ever to lower your monthly payments or access the equity in your home.
Whether you’re locking in a lower rate, consolidating debt, or tapping into cash for future goals, Rate’s refinance program is designed to give you the confidence and control you need.
Take the next step today - start your refinance journey with Rate and discover how we can help you see if you can save more on your mortgage!
Mortgage Refinance FAQs
1. How does refinancing affect my credit score?
Refinancing your mortgage can impact your credit score in a few ways. When you apply for a refinance, the lender will perform a hard inquiry on your credit report, which may temporarily lower your score by a few points. Additionally, closing your old mortgage and opening a new one can affect the length of your credit history and your credit mix, both of which are factors in your credit score. However, if the refinance results in a lower interest rate or more manageable payments, it could positively influence your score over time as you make consistent payments.
2. Are there any tax implications I should be aware of when refinancing?
Yes, refinancing can have tax implications. For example, the interest you pay on a refinanced mortgage may be tax-deductible, but there are limits. Additionally, if you opt for a cash-out refinance, the cash you receive isn’t taxable as it’s considered a loan, but using it for non-home-related expenses could affect the deductibility of the interest.
3. What is the break-even point in mortgage refinancing, and why is it important?
The break-even point is the time it takes for the savings from your new mortgage to cover the cost to refi a mortgage. To calculate it, divide your total closing costs by the amount you’ll save on your monthly payment. For example, if your refinancing costs are $5,000 and you save $200 a month, it would take 25 months to break even. The break-even point is crucial because it helps you determine whether refinancing is worth the upfront costs, especially if you’re planning to move or refinance again before reaching this point.
4. Can I refinance my mortgage if I have an existing second mortgage or home equity loan?
Yes, you can refinance your primary mortgage even if you have a second mortgage or home equity loan, but it can be more complex. One option is to combine both loans into a single mortgage through a process called "subordination," where the second mortgage lender agrees to remain in the second lien position after the refinance. It’s essential to discuss this with your lender, as it may affect the terms and interest rates of the refinance.
5. What should I do if my home’s appraisal value is lower than expected during refinancing?
If your home’s appraisal comes in lower than expected, it could affect your ability to refinance, especially if it leads to a higher loan-to-value (LTV) ratio. You have several options: you could negotiate with the lender to reconsider the appraisal, provide additional comps or documentation that support a higher value, or pay down the mortgage to lower the LTV. Alternatively, you could explore other refinancing programs that may not require an appraisal, such as streamlined refinancing options offered by some lenders.***
*Rate does not provide credit counseling or credit repair services.
**Savings, if any, vary based on consumer credit profile, interest rate availability, and other factors.
***By refinancing, you may pay more in costs and interest over the extended term.