Refinancing a mortgage could help you save money by reducing your interest rate, lowering your monthly payment, or letting you pay off your home loan more quickly. But refinancing isn’t free, and it’s important to factor in how much you’ll pay in closing costs when considering a refinance.
Mortgage refinance closing costs often run thousands of dollars. But there are ways to reduce these costs or even refinance with no closing costs to pay upfront.
Here’s what you should know about closing costs when you’re refinancing:
- What Are Refinance Closing Costs?
- Common Refinance Closing Costs
- Common Closing Costs You Can Negotiate
- Common Closing Costs You Cannot Negotiate
- Other Ways To Reduce Your Refinance Closing Costs
- What Is a No-Closing-Cost Refinance?
- The Bottom Line on Refinance Closing Costs
What Are Refinance Closing Costs?
The closing costs you pay when refinancing are similar to the closing costs you paid when you bought your home. Closing costs are fees charged by your lender and other third parties, and often include underwriting fees, appraisal fees, credit report fees, title fees, discount points, and attorney fees.
So, who pays closing costs on a house? While the buyer pays the bulk of closing costs when a home is sold, there’s only one party — you, the homeowner — that pays them when you refinance. The amount can vary between 2% and 6% of your remaining loan balance that you’re refinancing, but the nationwide average closing costs on a refinance are about $5,000. A mortgage refinance calculator can be useful in helping you determine your costs.
Common Refinance Closing Costs
Each lender has its own closing costs for refinancing a mortgage. Refinance closing costs also may vary based on the type of mortgage loan you have, where you live, and how you structure your refinance.
Some of these fees can be negotiated, meaning that you can shop around to get the best price or even get them waived. Other fees are pretty much set in stone.
Here’s a look at some of the common home closing costs for a refinance, how much are closing costs on a house typically, and whether these expenses are required or optional.
Application fees are charged when you apply for a loan. These fees cover administrative tasks and like credit checks. These fees will vary by lender, but typically run between $75 and $300. Not all lenders charge application fees. To avoid them, simply find a lender that doesn’t charge them.
Underwriting often is included in the application fee, though some lenders may charge separate underwriting fees — especially if they don’t charge an overall application fee. In this case, the underwriting fees will cover administrative tasks related to accepting, reviewing, and analyzing your refinance application.
Appraisal and inspection fees
A home appraisal and a home inspection are usually required when financing a home, and your lender may require them again when you refinance.
An appraisal determines the fair market value of the home, which your lender will use in deciding how much to let you borrow with a refinance.
An inspection determines the house’s condition, and may reveal problems with the home’s structure or major systems, such as the plumbing or the electrical system.
Inspection fees are typically paid directly to the inspector, while appraisals are ordered and paid for by your lender. Fees vary according to your location, the property layout, and the size of your home. Costs tend to range from about $300 to $500 for an inspection, and $300 to $700 for an appraisal.
Credit report fees
Before issuing any loan, a mortgage lender will check a borrower’s credit. This involves pulling their credit report and credit score from one or more of the three major credit reporting agencies.
The cost of pulling an applicant’s credit report may be included in the application fees or as part of the underwriting fees. With some lenders, this may be a separate fee, to the tune of about $30. A credit report fee is the only fee that lenders are allowed to charge before providing you with a loan estimate.
Title fees involve researching your home in government records to ensure that the title is free from unknown liens or other claims to ownership. The cost for a title search averages $200 to $400, and most lenders require this as part of the refinance approval process.
If you want a better interest rate on your refinance, you could buy mortgage points, also known as discount points. Points reduce your interest rate for an upfront fee. If you plan to stay in your home for a while, the interest savings over the life of the loan can make up for the upfront cost of buying points.
One mortgage point generally costs 1% of the total loan amount, and each point typically lowers your interest rate by 0.25 percentage points.
For example, say that your lender offers you a $250,000 refinance with an interest rate of 3.75%. You want a rate of 3.25%, so you purchase 2 points for $2,500 per point, for a total of $5,000. This reduces your interest rate by 0.5 percentage points.
Buying points is optional, and might not be offered by all lenders.
Sometimes referred to as closing or escrow fees, settlement fees cover expenses related to the escrow account that is used to transfer funds to the appropriate parties at closing, and handle the signing or notarization of required documents.
Prices for this vary based on the escrow or title company, your location, and what services are covered.
If your state requires an attorney’s review of the transaction documents, expect to pay for this service. Attorneys fees may be rolled into other closing costs — such as settlement fees — depending on your lender and the title company.
Though a survey likely was ordered when you first purchased your home, your lender may require another one when you refinance. This report shows your property’s size and layout, and may include coordinates for its exact boundaries.
Survey fees can cost from $150 to $950 or more. The cost of these fees varies widely by location, property size, and terrain.
Even though you’re refinancing a home you already own, the transaction needs to be recorded in the public record. Local governments charge fees for this. How much you have to pay in recording fees depends on where your home is located, and can vary significantly. Expect these fees to cost around $125 and up.
Insurance and taxes
Refinancing a home requires paying various taxes and insurance costs. These may include:
- Property taxes.
- Title insurance.
- Property insurance.
Some taxes and insurance premiums may need to be prepaid when refinancing a mortgage.
Common Closing Costs You Can Negotiate
The best way to see which closing costs you can save money on is to look at your loan estimate. This three-page document is a standardized form that your lender is required to provide within three business days of receiving your application. Page 2 of your loan estimate will outline your expected closing costs, and list the services you can shop for and the services you cannot shop for.
Remember, a loan estimate is just that — an estimate. It’s not a guarantee that the lender will approve that loan after thoroughly reviewing your financial documents during the underwriting phase.
Here are some of the closing costs you can negotiate during the typical mortgage refinance process:
- Survey fees: If a survey is required, you can shop around for the best price before ordering one.
- Title insurance, title fees, and title attorney costs: You can call around to find the best price on this expense through title insurance companies in your area.
- Settlement fees: As part of the title settlement process, settlement fees can include a number of different expenses. You can shop around for the title company you prefer, depending on factors like price.
- Homeowners insurance: You can shop around to find the homeowners insurance policy that works best for you, your property, and your budget. Your lender may require you to purchase certain levels of coverage to protect the property, but the actual carrier and policy you choose is up to you. Bundling your homeowners policy with other coverages, such as auto and life insurance, often can get you discounted rates.
- Home inspection: A new home inspection isn’t always required when refinancing. If your lender requests one, though, you can shop around for an inspector, and pay them directly.
- Application fees: Depending on your credit score and other factors, you may be able to negotiate the application fee with a lender. You also can avoid this expense altogether by finding lenders that don’t charge them in the first place.
- Credit report fees: This is the only fee that a lender can charge you prior to providing you with a loan estimate. Since a credit check is necessary for loan approval, you likely will have little room to negotiate. Thankfully, this fee is usually minimal, and you can always find a lender that doesn’t charge one or charges less.
There are some other fees that you can’t necessarily negotiate with your lender directly, but are optional, such as:
- Mortgage points: Points can reduce your loan’s interest rate by paying an upfront fee, but whether to buy any is up to you.
Common Closing Costs You Cannot Negotiate
Common refinance closing costs you typically cannot avoid are:
- Appraisal fees: To avoid conflicts of interest, appraisals are ordered by the lender directly from its network of approved appraisers. The cost of this inspection is set by your lender and cannot be negotiated or reduced.
- Property taxes: The property taxes on your home, which you may need to prepay at the time of purchase or refinance, are set by your state, county, or municipal government. These are non-negotiable, though you may be able to contest them with your tax assessor’s office on an annual basis.
- Recording fees: Recording fees are charged by your state, county, or municipal government. These fees are required and paying them cannot be negotiated.
Other Ways To Reduce Your Refinance Closing Costs
While closing costs aren’t entirely avoidable, there are ways to save money on the ones you do have to pay.
Keep an eye out for ‘junk fees’
It’s important to examine closely the fees that a potential lender is charging so that you can determine if they’re necessary. Sometimes, you may find “junk fees,” which are excessive processing and filing costs that aren’t required.
These can be named different things, but are generally called processing fees, rate-lock fees, underwriting fees, or application fees. In some cases, they may seem like duplicate costs — that’s when you should ask the lender for clarification.
If any of the closing costs feel unnecessary or too high for what’s covered, ask if the cost can be reduced. If it can’t, consider whether another lender might offer lower fees or be a better fit for you.
Ask for some fees to be waived
A lender might agree to waive certain fees. This is often true with application fees, underwriting fees, transfer fees, and processing fees, especially if a similar fee already is being charged. You’ll have more luck getting fees waived if you’re working with your current lender and the company doesn’t want to lose you as a customer. It’s always a good idea to at least ask — the worst a lender can do is say no.
Any time you’re planning to refinance, it’s wise to shop around. This helps ensure you’ll get the best interest rate and the lowest possible fees on your loan.
Ask each lender how much are closing costs to refinance a mortgage with them. If closing costs are the only thing keeping you from refinancing with a particular lender, let the company know that. The lender may be willing to reduce or waive some fees to earn or retain your business.
Loyalty has its benefits
Refinancing with a mortgage lender, bank, or credit union you’re already working with can unlock many money-saving benefits. Lenders may offer promotional rates or credits for refinancing your existing mortgage with them. Or, if you refinance through your everyday bank or credit card issuer, you may qualify for cash-back rebates and other benefits.
Before selecting a lender, it’s worth seeing what sort of incentives your existing bank or lender can offer.
What Is a No-Closing-Cost Refinance?
If you’re unable or unwilling to pay the upfront fees when refinancing, there are no-closing-cost refinance options. When considering how to refinance without closing costs, though, it’s important to remember that there’s really no such thing as a free lunch — those costs still have to be paid.
“The options here are to exchange the closing costs for a higher interest rate throughout the life of the loan — or roll the costs into their monthly mortgage payments,” says Michele Anapol, a mortgage loan originator with Cross Country Mortgage based in Miami, Florida.
Rolling your closing costs into your loan will increase your monthly payment, the total loan amount, and the overall interest paid. But a no-closing-cost refinance may be worth it depending on the benefits you get from refinancing and your personal financial situation and goals.
The Bottom Line on Refinance Closing Costs
Closing costs are an added expense any time you’re refinancing a home. While these costs can seem high, understanding what’s included in closing costs and what to expect from them will help you better prepare for the expense. And if you shop around before refinancing, you can often find a lower interest rate and affordable closing costs. Ask your lender if you have any questions, don’t understand what a particular fee is for, or want to try and reduce or waive one of the costs altogether.