You've probably heard lender advertisements saying you can save money by refinancing, get a lower monthly payment, or even get cash back. Those are certainly popular reasons for refinancing, and the potential savings may have piqued your interest in refinancing your home.
But here's what the lenders aren't so quick to say: Refinancing can be costly. It can cost between 3% and 6% of your remaining mortgage balance. Refinancing costs are made up of several different fees you’ll pay at different points in the process, but you may be able to shop around to save money. Here's how much refinancing could cost you.
- Refinancing generally costs between 3% and 6% of your remaining mortgage balance.
- Refinancing costs comprise several different fees you’ll pay at different times.
- Some closing costs are paid out of pocket, and others can be rolled into your loan.
- "No-closing-cost loans" come with higher monthly payments and are more expensive in the long run.
How Much Does It Cost To Refinance?
You can expect to pay between 3% and 6% of your remaining mortgage balance to refinance your home. That means if you have $200,000 left on your mortgage, you’ll pay up to $12,000 to refinance.
You won't pay your refinancing costs all at once, though. Instead, you'll pay different fees at different stages of the refinancing process. For example, you may have to pay an application fee when you request the loan, and you’ll pay a recording fee once it's closed.
Your lender can provide you with an estimate of these fees. You'll need to be prepared to pay some or even most of them out of pocket, which can be a surprise to some homeowners considering refinancing.
The fees may vary based on location and lender. But in general, here are some of the refinance fees you might see:
- Application fee: Some lenders charge you $75 to $300 just to apply for the loan, whether you're approved or not.
- Origination fee: Generally 0.5% to 1.5% of the mortgage, this fee covers the cost of underwriting the loan.
- Appraisal fee: This fee of $300 to $700 covers the cost of having your home appraised so the lender knows how much your home is really worth.
- Inspection fee: Lenders may require inspections for septic function, insects, structural support, or other systems, which may cost $175 to $300 per inspection.
- Attorney fee: This fee of $500 to $1,000 covers the cost of having an attorney assist in the closing.
- Mortgage insurance/funding fee: Some types of federal mortgages, such as VA loans, FHA loans, or USDA loans, have an upfront funding fee or mortgage insurance premium (MIP) that's tacked onto the balance of your new loan.
- Survey fee: This $150 to $400 charge makes sure your land and the structures on it are in the right spots.
- Title search fee and title insurance: This $700 to $900 charge covers the cost of searching the records to make sure you're really the homeowner, as well as insurance for any errors in this process.
- Recording fee: This fee of $40 to $100 pays local governments to officially record your mortgage documents.
How To Lower Refinancing Costs
The list of closing costs above may seem intimidating, and it can be eye-opening to see how much refinancing really costs. But while refinancing your mortgage isn’t cheap, the good news is you have a number of opportunities to save money on those fees.
Improve Your Credit
Improving your credit is the single biggest thing you can do to reduce your long-term refinancing costs. With a better credit score, you may be able to get a lower interest rate, which is the biggest cost in taking out a mortgage.
Improving your credit can take time, but there are ways to get started today. Most of the advice boils down to three essentials:
- Always pay your bills on time.
- Pay down (and eventually eliminate) your credit card debt.
- Keep an eye on your credit reports.
If you need help, consider getting credit counseling from a reputable source.
Shop for the Best Rate
Having a good credit score will help you get a better rate. But even if you're still working on improving your score, some lenders will still offer better rates than others.
Try checking your rate with as many lenders as you can. Rate-shopping websites are useful, but remember to also reach out to local credit unions to get the full range of options available to you.
Negotiate Your Closing Costs
When you find a lender you like, they should provide you with an official loan estimate. The second page of this standardized document includes a breakdown of three types of closing costs:
- Lender fees (Section A)
- Services you cannot shop for (Section B)
- Services you can shop for (Section C)
You can't really do anything with Section B, but you can work with Section A and Section C. Review the lender-specific costs in Section A and try negotiating with your lender to reduce or waive some of the fees. The worst they can do is say no, and you'll be in the same position you are now.
For Section C, you may be able to shop around for different inspectors, appraisers, surveyors, and the like. You'll need to do this work yourself, and contact your lender when you've found a cheaper replacement.
Is a No-Closing-Cost Refinance Worth It?
Coming up with the closing costs when refinancing is a big enough barrier for many people that some lenders offer "no-closing-cost refinances." You might not have to pay anything upfront in these cases, but you’ll still pay those costs in two main ways.
First, lenders may charge a higher interest rate on these loans, so they’ll eventually make back the money they’re not getting at the start of your new mortgage. Second, lenders might encourage you to roll all of the closing costs into the loan, meaning you'll have an even larger balance to pay off—and you’ll pay more in interest.
Regardless of the method your lender uses, the end result is the same: You'll have a higher monthly payment than if you'd paid the closing costs upfront, and as a result, your loan will be more expensive in the long run.
The Bottom Line
Even though refinancing a loan costs a lot, you can still save money in the long term if you get a lower rate and/or refinance for a shorter term. The only way to know what your refinanced mortgage might cost is to run the numbers for yourself using a mortgage refinance calculator.