Image courtesy of Getty Images, Illustration by Isiah Davis/Bankrate
Refinancing your mortgage can give you the opportunity to lower your monthly payments, turn your equity into cash, or change your loan type or term. However, the process isn’t free. You’ll incur upfront costs similar to those you incur when you first took out your mortgage. When considering refinancing, it’s important to make sure these numbers line up with your savings goals.
How much will it cost to refinance?
According to ClosingCorp, the average mortgage refinance fee is $2,375, excluding taxes. These fees vary mainly depending on the loan amount and where you live. In general, you can expect fees to be between 2 and 5 percent of your new loan balance. For example, if you’re refinancing a $200,000 mortgage, fees could range from $4,000 to $10,000. Here’s a typical breakdown of fees:
| Closing costs | commission |
|---|---|
| Application fee | $75 to $300 |
| Origination and/or underwriting fees | 1% to 1.5% of the loan principal |
| Recording fee | $25 to $250 depending on location |
| Appraisal fee | $500 – $1,000 |
| Credit check fee | $25 |
| Title Service | $300 – $2,000 |
| Investigation fee | $140 to $400 |
| Attorney’s fees/settlement | $500 – $1,000 |
In addition to closing costs, you’ll pay interest at your new interest rate, which depends on many variables, including:
- Your credit score
- Lender
- Types of refinancing
- Loan size and term
- Property Type
How to lower refinancing costs
The less you have to pay to refinance, the more you’ll save in interest and the faster you’ll realize those savings. Here are some tips to help lower the cost of your new loan:
1. Increase your credit score
Just like you aimed for a certain credit score when you applied for your first mortgage, you’ll also need to meet a minimum credit score for a refinance. The better your credit score, the lower your refinance interest rate will be. There are several strategies you can use to improve your credit score, including paying down or clearing out your debts.
2. Compare mortgage offers and interest rates
To get the best possible interest rate, compare options from multiple mortgage refinance lenders. To get a better idea of the cost of your loan, check the annual percentage rate (APR), which measures the cost of interest and fees. To get different offers, consider working with a mortgage broker. Be sure to get quotes from your existing lender to see if they offer low-cost refinancing or other repeat customer perks.
3. Negotiate closing costs
As with your first mortgage, be sure to review the loan quote from your lender carefully to get an idea of the exact costs of refinancing. You might be able to save some money by negotiating your closing costs, especially if you’ve shopped around and received multiple refinance offers. You can also use other quotes to see if there are any unusually high fees.
4. Apply for a fee waiver
Similarly, ask your bank or lender if they can waive or reduce any application or credit check fees, and if you’ve recently had a home appraisal or property survey done, see if you can skip that — your lender may be willing to work with you, especially if you’re an existing customer.
5. Evaluate whether to buy mortgage points
If you want to lower the closing costs of refinancing your mortgage, consider whether it’s worth buying mortgage or discount points. Purchasing points will lower your interest rate, but it’s usually best to buy points only if you plan to own your home for a long time and don’t plan on refinancing again later, even if it means paying for major renovations.
Bankrate’s Mortgage Refinance Calculator
Use our free mortgage refinance calculator to estimate your monthly mortgage payment.
Using a calculator
6. Ask your original title insurance company
Although title fees are regulated in many states, you can reduce the cost of title services by asking your current title insurance company how much it would cost to reissue your policy on a refinanced loan. Doing this may end up costing you less than starting over with a new company and policy.
7. Consider a fee-free refinance
If you’re short on cash, consider a no-closing-cost refinance. Though the name may be a bit misleading, this refinance doesn’t mean there are no closing costs — it just means you don’t have to pay any fees at closing. Instead, the lender will either raise your interest rate or roll their closing costs into your new loan.
