How much does refinance a mortgage cost?
Key Points
- They are refinancing your mortgage costs between 2% and 5% of the new loan amount. These closing costs may include application, origination, and home appraisal fees.
- To determine if a refinance is worth the cost, decide that now on your new mortgage outweighs the initial cost.
- You can save on refinancing costs by improving your credit score, comparing mortgage terms and rates, and negotiating closing costs.
How much does a refinance cost?
According to ClosingCorp, the average mortgage refinance costs $2,375, not including tax. These costs mainly depend on the size of your loan and where you live. You can generally expect to pay between 2% and 5% of the new loan balance in closing costs. If you'reyou'reancing a $200,000 mortgage, you may pay between $4,000 and $10,000 in closing costs. Here'sHere'sakdown of typical closing costs:
|
Closing Costs |
Fee |
|
Application Fee |
$75-$500 |
|
Origination and/or underwriting Fee |
0.5%-1.5% of loan principal |
|
Recording Fee |
Cost depends on the location |
|
Appraisal Fee |
$300-$400 (More for a larger property) |
|
Credit Check Fee |
$30 or less |
|
Title Services |
$700-$900 |
|
Survey Fee |
$375-$750 |
|
Attorney/Settlement Fee |
$500 or more |
Along with closing costs, you'll be interested in a new rate. This rate depends on many variables, including:
- Your credit score
- Lender
- Type of refinance
- Loan size and term
- Property type
Is refinancing your mortgage worth it?
If you can get a lower interest rate and plan to hold the loan (in other words, you don't move or sell your home) for a while, refinancing your mortgage is worth it.
BankraBankrate'sage refinance break-even calculator can help you determine if refinancing is worth it. This calculator estimates the break-even point or the time when the savings from a newly refinanced mortgage exceed the closing costs of completing it.
How to reduce the cost of refinancing.
The less you pay to refinance, the more you can save on interest, and the faster you'll maximize those savings. Here are some tips to reduce the cost of a new loan:
1. Increase your credit score.
As you look for a particular credit score when applying for your first mortgage, you will need a minimum credit score to refinance. The better your credit, the lower your refinance rate. You can improve your credit by paying off or canceling the debt, among several strategies.
2. Compare mortgage offers and rates.
To get the best mortgage refinance rate:
- Compare offers from several lenders.
- Look at the APR to get a more complete idea of the cost of the loan.
- Consider working with a mortgage broker to get multiple offers.
- Always get a quote from your current lender if they offer low-cost refinancing or other benefits for returning customers.
3. Negotiate closing costs.
As with your first mortgage, look closely at your lender's estimate to understand the actual cost of refinancing. You can save money by negotiating closing costs, especially if you've turned around and have more than one refinance offer. You can also use other quotes to check for unusually high rates.
4. Request a fee waiver.
Likewise, ask your bank or lender if they will waive or reduce application or credit check fees. You can also see if you can skip a new home appraisal or property survey if you've recently. Your lender may be willing to work with you, especially if they are already a customer.
5. Assess if buying mortgage points is worth it.
If you want to lower the closing costs of your mortgage refinancing, consider whether it's worth buying a mortgage or getting discount points. Although buying points lowers your interest rate, it's best if you expect to own the home for a long time and don't refinance it even later. You are also paying for significant renovations. You can use the BankraBankrate'sage refinance calculator to determine if purchasing points are worth it when refinancing.
6. Go with your original title insurer.
In many states, title rates are regulated. Still, you can reduce title services costs by asking your current title insurance company to reissue the policy on your refinanced loan. How much will it charge you to do? Doing so may cost less than starting a new company or policy.
7. Consider a refinance with no closing costs.
If you're in cash, consider a no-closing refinance. The name is misleading, as this refinance is not free of closing costs. You will not have to pay any closing fees. Instead, the lender will raise your interest rate or roll the closing costs into the new loan.
Why Refinance Your Mortgage?
- You can lower your monthly payment: If you have a fixed-rate mortgage with a higher than current market rate, refinancing can help you save money on your monthly mortgage payment. Consider refinancing if you can lower your rate by one-half to three-quarters of a percentage point.
- You can shorten your loan term by Refinancing your 30-year mortgage with a 15-year loan, which will allow you to pay it off faster and with lower overall interest.
- You can switch from an adjustable-rate loan to a fixed-rate loan: If you have an adjustable-rate mortgage, you can switch to a fixed rate for stable principal and interest payments.
- You Can Get Rid of Private Mortgage Insurance (PMI): If your home has increased in value and you now have 20% equity, one way to eliminate PMI is by refinancing.
- You can get cash out: If you want to pay off credit card debt or make home improvements, you can do a cash-out refinance if you have enough equity. Ensure you have a clear goal for these funds and be realistic about your spending habits. Do you plan to use the money for discretionary spending, such as a vacation, or for an investment, such as furthering your education? If you use the cash to pay off other high-cost debts, will you return to debt?
Frequently Asked Questions About Refinancing Your Mortgage
How does refinancing your mortgage work?
When you refinance your mortgage, you get a new mortgage with a different interest rate and possibly a different loan term. You can also get a new loan from another lender. This new mortgage pays off your original loan.
Will your monthly payments go down when you refinance?
Whether or not your monthly payments go down when you refinance depends on a few factors, including the interest rate and the new mortgage term. For example, if you have a 30-year loan and refinance into a new 30-year loan at a lower interest rate, your payment will be down. If you refinance for a shorter term, your payment may increase even if you get a lower interest rate.
What are the current refinancing rates?
According to Bankrate data, the national average APR on a 30-year refinance was 7.15% through February 5, 2024.
