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How Much Will It Cost To Refinance Your Mortgage?

6-Minute Read
Published on September 13, 2021
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In the right situation, refinancing can be a good way to save money and also take advantage of the existing equity in your home. However, it doesn’t come free. The average cost to refinance a mortgage may be anywhere between 2% – 5% of the loan amount and there’s wide variability based on the type of loan you’re getting. What affects your costs? Here’s a short list:

  • Credit score
  • Location
  • Loan amount
  • Loan type
  • Whether you’re taking cash out

If you’re looking for a better idea of what you personally can expect to pay based on some basic data points, check out our cost of refinance calculator. We’ll take a look at the types of costs you can expect as well as how to lower those costs. Finally, we’ll finish up by briefly going over how to move forward if you’ve decided refinancing is right for you.

Typical Mortgage Refinance Fees

When you refinance, you’re getting a new mortgage, so many of the closing costs are going to be familiar from when you bought your home. It’s important to note that not everything will carry over from the first time around. Here’s a table of some of the common costs that may be associated with refinancing. The costs are ranges or averages.

Refinancing Fee

Cost

Loan Application Fee

Up to $500

Loan Origination Fee

Typically 0.5% – 1% of the loan amount

Mortgage Points

Depends on number and loan amount

Credit Report Fee

Up to $50

Home Appraisal Fee

$200 – $600

Home Inspection Fee

Up to $500

Title Search/Abstract Fee

$75 – $300

Title Insurance

$1,000 – $3,000

Recording Fee

Up to $250

Reconveyance Fee

Up to $65

Flood Certification Fee

Up to $25

Tax Service

$60

Escrow Setup

Varies

Let’s give a little bit more of a breakdown of these refinance fees:

  • Loan application fee: Some lenders charge a loan application fee for taking your application and processing the documents you provide. Others consider this a deposit and it’s used toward other closing costs.
  • Loan origination fee: This is the fee charged by the lender for the cost of setting up your loan. Sometimes it’s split into processing and underwriting fees. In any case, these are typically 0.5% – 1% of the loan amount.
  • Mortgage discount points: You have the option of prepaying interest in order to lower your interest rate. One point is equal to 1% of the loan amount. On the other hand, taking a slightly higher interest rate can lower your closing costs. Either way, the mortgage rates you see advertised come with a certain number of points. To figure out the cost of getting a certain rate, multiply your loan amount by the number of points paid. A positive point value indicates you’re paying for that number of points, while a negative value means you’re getting that amount off closing costs.
  • Credit report fee: A credit report is periodically pulled throughout the loan process in order to make sure that nothing has changed about your financial situation and you can still qualify.
  • Appraisal: Because your home is used as collateral, lenders won’t loan you more than your home is worth. Your home has to be given a new valuation for the refinance. The most common way to do this is through an appraisal. Sometimes lenders can get a valuation another way, so you may or may not be able to avoid this expense on a refinance.
  • Home inspection: This is when an inspector goes through your home and checks to make sure that systems and appliances and the like are performing correctly as well as checking on the structural integrity of your home. You can usually skip this step for a refinance unless the appraiser has specific concerns. For example, if there’s evidence of wood damage, you might need a pest inspection.
  • Title search: You own the home already, so you might be asking yourself why the need for a new title search. In this case, the title company is looking for any new liens since your last transaction that could muck up a future sale.
  • Title insurance: Because it’s a new loan, you’ll be required to take out a new lender’s title policy to protect a lender’s interests. You’ll also have the option to purchase an owner’s title policy at this time. The good news is that if you got one when you bought your house, the owner’s policy remains in effect for as long as you own your home.
  • Recording fee: Because liens show up on your title or deed, you will have to pay to have that paperwork refiled with the county again.
  • Reconveyance fee: This is associated with the paperwork required to remove the lien from the previous mortgage from the title and apply your new one for the refinance.
  • Flood certification: The lender has to make sure that flood zones are properly marked periodically and make sure you have the right insurance coverage to protect its investment.
  • Tax service: This is set up so the lender is notified if you should ever miss a tax payment. Again, this is about protecting their investment.
  • Escrow setup: People with less than 20% equity in their home are often required to have an escrow account covering property taxes, homeowners insurance and mortgage insurance payments. Most people choose to have an escrow account so they can spread the expense of property taxes and homeowners insurance out over the course of the year rather than one big payment. However, you’ll be required to fund the account to a certain level at closing to get it started. The good news is you’ll eventually get a check back for whatever was left in the escrow account from your previous loan. The exception to this would be if you’re doing a new loan with the same lender. In that case, they might be able to roll your escrow account into the next loan so you don’t have to worry about it.

There are a couple of other fees that may come into play depending on the loan type you have. If you’re refinancing into an FHA loan, there’s an upfront mortgage insurance premium of 1.75% of your mortgage balance that can either be paid at closing or rolled into the loan. If you’re doing an FHA Streamline, the upfront funding fee is 0.01% of the loan amount.

Instead of mortgage insurance, VA loans have a funding fee of between 1.4% – 3.6% that applies to most clients. The amount of the fee depends on whether it’s your first time using a VA loan and the amount of your down payment, among other factors. If it’s a VA Streamline refinance (also referred to as an Interest Rate Reduction Refinance Loan or IRRRL), the funding fee is 0.5% of the loan amount.

How Can I Lower My Cost To Refinance?

If you’re looking to save some money on closing costs, there are several things you can take a look at:

  • Shop around for title insurance: There are many things you can’t actively choose during the lending process, but one of them is the title insurance provider. You have the option of going with one that’s most affordable in your area.
  • Skip the home inspection: If you’re refinancing, you likely know about the major problems that exist within your home. You don’t need a home inspection. The only exception is that you might have to get one if the appraiser brings up an issue.
  • Consider a no-closing-cost refinance: A no-closing-cost refinance involves taking a higher interest rate in exchange for lender credits to cover your closing costs. Earlier we talked about negative point values associated with higher mortgage rates so that the money you get back can go toward costs. These are lender credits. One thing to be aware of is that you’re trading lower closing costs for a higher monthly payment and more interest paid over the life of the loan.

You’ve Decided To Refinance. Now What?

If you've decided to refinance, then it’s time to prepare for the paperwork necessary. Most of the documents that you needed for your first mortgage will once again be required for a refinance, including tax returns, W-2s and pay stubs. If you’re self-employed or receiving alimony or child support, you may have to provide additional documentation. 

If you’re working with a specific lender, your loan officer will help you understand which documents you need and communicate a timeline. You’ll be working with this person for several weeks, so be sure to choose a mortgage lender that you both trust and enjoy working with.

The Bottom Line: The Short-Term Cost Of Refinancing Can Lead To Long-Term Savings

A refinance might not be for everyone. However, today's historically low interest rates, coupled with the recent elimination of the adverse market fee, make a mortgage refinance more accessible and practical for more people.  Therefore, the upfront costs of refinancing have a high chance of paying for themselves relatively quickly.

If you’re ready to get started, you can apply online or give us a call at (888) 452-0335. If you have further questions regarding a mortgage refinance, you can explore more about refinancing your home in our Refinance Guide.

View Your Refinancing Options

Call our Home Loans Experts at (800) 251-9080 to begin your mortgage application, or apply online to review your loan options.

Start Your Refinance Online

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Kevin Graham

Kevin Graham is a Senior Blog Writer for Rocket Companies. He specializes in economics, mortgage qualification and personal finance topics. As someone with cerebral palsy spastic quadriplegia that requires the use of a wheelchair, he also takes on articles around modifying your home for physical challenges and smart home tech. Kevin has a BA in Journalism from Oakland University. Prior to joining Rocket Mortgage, he freelanced for various newspapers in the Metro Detroit area.