Understanding the costs of refinancing (2024)

Although refinancing your current mortgage can be financially advantageous, you’ll likely incur costs totaling several thousand dollars to do so.

As with any large financial endeavor, it’s highly recommended that you do your homework, ask questions, and look carefully at your short- and long-term goals before deciding to refinance. You’ll want to work closely with your lender to do a cost-benefit analysis and determine whether refinancing makes sense for you.

Refinancing costs

When you refinance, you are required to pay closing costs like those you paid when you initially purchased your home. The average closing costs on a refinance are approximately $5,000, but the size of your loan and the state and county where you live will play big roles in how much you pay. Refinancing costs include your loan origination fee and the following:

  1. Government recording costs.

  2. Appraisal fees.

  3. Credit report fees.

  4. Lender origination fees.

  5. Title services.

  6. Tax service fees.

  7. Survey fees.

  8. Attorney fees.

  9. Underwriting fees.

In addition, if you plan on buying discount pointsto buy down your mortgage rate, you’ll have to pay for that up front. Buying discount points can save you money over the life of the loan, but whether it makes sense depends on your personal situation.

Remember, you can refinance through your existing lender or a new lender. It’s highly recommended that you interview several lenders to compare their rates and terms before you select the loan that works best for you.

Understanding the costs of refinancing (2024)

FAQs

What does it usually cost to refinance? ›

Refinance closing costs commonly run between 2% and 6% of the loan principal. For example, if you're refinancing a $225,000 mortgage balance, you can expect to pay between $4,500 and $13,500. Like purchase loans, mortgage refinancing carries standard fees, such as origination fees and multiple third-party charges.

Do you have to pay closing costs when refinancing? ›

When you refinance, you are required to pay closing costs like those you paid when you initially purchased your home. The average closing costs on a refinance are approximately $5,000, but the size of your loan and the state and county where you live will play big roles in how much you pay.

Why does refinance cost so much? ›

Mortgage refinance is expensive because it's similar to taking out a new loan on a home. You usually have to pay for a variety of costs and fees including loan origination fees, application fees, title service fees and appraisal fees.

How can I avoid closing costs on a refinance? ›

You can choose between two different options with a no-closing-cost refinance: either an increased interest percentage or a higher loan balance. Not every lender offers both types of no-closing-cost refinances, so make sure your lender can offer you the option you want.

Can you negotiate closing costs on a refinance? ›

However, the lender isn't going to offer you discounts if you don't ask for them. To potentially reduce some of the closing costs of a refinance, ask for closing costs to be waived. The bank or mortgage lender may be willing to waive some of the fees, or even pay them for you, to keep you as a customer.

Why are closing costs so high on a refinance? ›

Why does refinancing cost so much? Closing costs typically range from 2 to 5 percent of the loan amount and include lender fees and third-party fees. Refinancing involves taking out a new loan to replace your old one, so you'll repay many mortgage-related fees.

Is it better to pay closing costs out of pocket when refinancing? ›

While a no-closing-cost refinance may keep you from spending a chunk of money out of your pocket at closing, you actually pay for it over the life of your loan. It's not free money; a no-closing-cost refi simply means your lender hikes your interest rate or adds the closing costs to your new loan amount.

Does refinancing hurt your credit? ›

Refinancing will hurt your credit score a bit initially, but might actually help in the long run. Refinancing can significantly lower your debt amount and/or your monthly payment, and lenders like to see both of those. Your score will typically dip a few points, but it can bounce back within a few months.

Can refinance costs be rolled into a mortgage? ›

Finally, borrowers can elect to roll some or all of the closing costs when refinancing. And in most instances, borrowers do just that. On a $400,000 loan, the new loan would be $404,000. Two things here-yes, that adds to the loan amount and yes that increases the monthly payment.

What do you lose when you refinance? ›

You don't have to lose any equity when you refinance, but there's a chance that it could happen. For example, if you take cash out of your home when you refinance your mortgage or use your equity to pay closing costs, your total home equity will decline by the amount of money you borrow.

Why do I owe more after refinancing? ›

For example, when refinancing your mortgage, there will be closing costs to be paid as part of the process. If you opt to have the closing costs rolled into the new mortgage, you're augmenting the mortgage balance — the amount you owe — and thus diluting your equity — the amount you own.

Why do banks always want you to refinance? ›

Your servicer wants to refinance your mortgage for two reasons: 1) to make money; and 2) to avoid you leaving their servicing portfolio for another lender.

Can you refinance with zero down? ›

You don't need a down payment to refinance, but you'll likely have to come up with cash for closing costs. Some lenders let you roll closing costs into the mortgage to avoid upfront expenses. You can also try negotiating with the lender to waive them.

Is it worth it to refinance? ›

Is refinancing worth it? If it frees up money in your monthly budget, reduces the overall cost of the loan or helps you achieve some other financial goal, refinancing can be well worth the work and money. “It's important to determine your break-even point,” says Linda Bell, senior writer for Bankrate.

Is it always a good idea to refinance? ›

So when is refinancing your mortgage a good idea? One rule of thumb is that refinancing may be a good idea when you can reduce your current interest rate by 1% or more. That's because you can save money in the long-term. Refinancing to a lower interest rate also allows you to build equity in your home more quickly.

Is it always worth it to refinance? ›

As a rule of thumb, experts often say that it's not usually worth it to refinance unless your interest rate drops by at least 0.5% to 1%. But that may not be true for everyone. Refinancing for a 0.25% lower rate could be worth it if: You are switching from an adjustable-rate mortgage to a fixed-rate mortgage.

When should you refinance a mortgage? ›

A rule of thumb says that you'll benefit from refinancing if the new rate is at least 1% lower than the rate you have. More to the point, consider whether the monthly savings is enough to make a positive change in your life, or whether the overall savings over the life of the loan will benefit you substantially.

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