How much does it cost to refinance a mortgage?
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Refinancing your mortgage can lower your interest rate, help shorten your loan term or convert equity into funds you need — but it comes with a price tag. Just like your first mortgage, you’ll need to consider the closing costs.
- Refinancing your mortgage can help you save money or access cash, but you'll need to first consider the closing costs.
- Generally, expect to pay anywhere between 2 percent and 5 percent of the loan principal in closing costs.
- You can save on the cost of refinancing by boosting your credit score, comparing mortgage terms and rates and negotiating closing costs.
How much does refinancing a mortgage cost?
The closing costs for a mortgage refinance vary according to the size of your loan and state and county where you live. The average refinance closing costs increased in 2021 to $2,375 (excluding taxes), according to ClosingCorp.
Generally, you can expect to pay 2 percent to 5 percent of the loan principal amount in closing costs. For a $200,000 mortgage refinance, for example, your closing costs could run $4,000 to $10,000.
Here’s a breakdown of the fees commonly included in refinance closing costs:
|Application fee||$75-$300 or more|
|Origination and/or underwriting fee||0.5%-1.5% of loan principal|
|Recording fee||Cost depends on location|
|Appraisal fee||$300-$400 (more for a larger property)|
|Credit check fee||$25 or more|
How to lower the cost to refinance
- Boost your credit score
- Compare mortgage offers and rates
- Negotiate closing costs
- Ask for fee waivers
- Assess whether to buy mortgage points
- Go with your original title insurer
- Consider a no-closing cost refinance
1. Boost your credit score
Just as you aimed for a certain credit score when you applied for your first mortgage, you’ll need to meet credit score minimums to refinance, too. The better your credit, the lower the interest rate you’ll qualify for when refinancing. Among several strategies, you can boost your credit by paying down or paying off debt.
2. Compare mortgage offers and rates
To get the best mortgage refinance rate, compare offers from several banks and other mortgage refinance lenders. Make sure to look at APR to get a fuller sense of the loan’s cost. Consider working with a mortgage broker to get a range of offers. Always be sure to get a quote from your existing lender, too, in case it offers a lower-cost refi or other repeat customer benefits.
3. Negotiate closing costs
As with your first mortgage, look closely at the loan estimate from your lender to see the breakdown of costs. You might save yourself some money by negotiating closing costs, especially if you’ve shopped around and have more than one refinance offer in hand. You can use other quotes to check for unusually high fees and try to talk them down.
4. Ask 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. You can also see if it will let you forgo a new home appraisal or property survey if you’ve recently had one done. Your lender might be willing to work with you, particularly if you’re an existing customer.
5. Assess whether to buy mortgage points
If you want to lower your closing costs, consider whether buying mortgage or discount points is worth it. While buying points lowers your interest rate, it’s usually best only when you expect to own the home for a long time and don’t plan to refinance again — even to pay for a major renovation later on. You can use Bankrate’s mortgage refinance calculator to help determine whether it’s worthwhile to buy points when refinancing.
6. Go with your original title insurer
In many states, title rates are regulated, but you can try to cut down your title services costs by asking your current title insurance company how much it would charge to reissue the policy for your refinanced loan. Doing this might cost less than starting over with a new company or policy. In addition, if you didn’t obtain an owner’s policy the first time around, consider getting one now.
7. Consider 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 isn’t free; however, it means you won’t have to pay fees at closing. Instead, the lender will either raise your interest rate or fold the closing costs into the new loan. Usually, it’s not worth it to refinance if you can’t afford the closing costs.
Why refinance your mortgage?
Simply put, spending some money now can save you more money in the long run — or help you access cash. There are good reasons for refinancing and not-so-good reasons. Here’s a rundown of some of the main reasons you might want to consider refinancing your mortgage:
- You can lower your monthly payment – If you have a fixed-rate mortgage with a rate that’s higher than market rates today, refinancing could help save you money on your monthly mortgage payment. In general, it’s a good idea to consider refinancing if you can lower your rate by one-half to three-quarters of a percentage point.
- You can shorten your loan term – You can refinance your 30-year mortgage to a 15 year loan to pay it off faster and for less interest overall.
- You can change from an adjustable-rate to a fixed-rate loan – If you have an adjustable-rate mortgage, you might decide to switch to a fixed rate.
- You can get rid of private mortgage insurance (PMI) – If your home’s value has gone up and you now have 20 percent equity, refinancing is one way to eliminate PMI.
- You can get cash for your goals – If you want to pay down credit card debt or make home improvements, you can do a cash-out refinance, provided you have enough equity. Be sure to have a clear goal in mind for these funds, and be realistic about your spending habits. Do you plan to use the money for a discretionary expense, like a vacation, or for an investment such as furthering your education? If you plan to refinance other higher-cost debt, are you likely to run up debt again?
Refinancing isn’t free; you’ll need to pay closing costs similar to when you initially got your mortgage. However, these costs are often substantially less than the first time around, and you can try to negotiate with lenders to lower them even further. Use Bankrate’s refinance calculator to figure out the cost of refinancing and how long it will take for you to break even.