How Much Does It Cost to Refinance a Mortgage?
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Refinancing your mortgage comes with a list of expenses similar to what you paid when you got your original home loan. But before you decide on a new mortgage, it’s important to understand the cost to refinance and find ways to lower your mortgage refinance fees.
- How much does it cost to refinance a mortgage?
- 5 reasons to refinance a mortgage
- How to lower your refinance costs
How much does it cost to refinance a mortgage?
The cost to refinance a mortgage can range from 2% to 6% of your loan amount, depending on several factors including:
- The size of your loan
- Your lender
- Your location
- Your credit score
- Your available home equity
- Mortgage term
- Mortgage type
Before you refinance, consider how much you’ll have to pay in closing costs and compare that with how much the refinance could save you over time. The table below breaks down some typical costs to refinance.
Common mortgage refinance fees
|Type of fee||Amount|
|Application fee||$75 to $500|
|Origination fee||Up to 1.5% of loan amount|
|Credit report fee||$30 to $50|
|Home appraisal||$300 to $400|
|Home inspection||$300 to $500|
|Flood certification fee||$15 to $25|
|Title search and insurance fee||$400 to $900|
|Recording fee||$25 to $250|
|Reconveyance fee||$50 to $65|
When trying to decide if a refinance is worth it, a major factor to consider is how long you plan to stay in your home. Weigh the costs to refinance against your monthly savings and future goals by calculating your break-even point.
Your refinance savings could be significant if you plan to stay in your current house for the long haul and a refinance gets you a better interest rate and/or repayment term. However, if you’re moving in a couple of years, it might not be worth it.
5 reasons to refinance a mortgage
There are several reasons to consider a mortgage refinance:
- Lower your rate. Refinancing into a loan with a lower interest rate reduces your overall interest costs and monthly mortgage payment amount. If your credit history has improved or your income has substantially increased, you could refinance and get a much better mortgage rate. The amount you save depends on your original rate and the costs to refinance into a new loan. Use a refinance cost calculator to help you better estimate your bottom line.
- Change your loan term. Maybe you have the capacity to pay off your mortgage earlier with a shorter term, or perhaps you need to stretch out your term to get a lower monthly payment. There are trade-offs involved in either choice. Going from a 30-year to a 15-year mortgage could help you lock in a lower rate and save on interest costs, but your monthly payment will be significantly higher. Extending your loan term, on the other hand, would lower your monthly payment but cost you more in interest over the life of your loan.
- Tap your home equity. A cash-out refinance can provide the opportunity to improve your loan terms and access your available home equity. The new mortgage will be larger than your original loan, but you’ll pocket the difference in cash and can use it to accomplish other financial goals, like making home improvements or covering college costs. A cash-out refinance calculator can help you figure out your estimated mortgage payments under the new loan.
- Convert an ARM to a fixed-rate mortgage. An adjustable-rate mortgage (ARM) is a loan that has a low, fixed rate for the first few years, then changes to a rate that generally adjusts each year. The variable rate fluctuates based on market factors and can eventually adjust to a point that makes the ARM unaffordable. Converting your ARM makes sense if you prefer the stability of a fixed-rate mortgage.
- Convert an FHA loan to a conventional loan. If you have a loan backed by the Federal Housing Administration (FHA) and made anything less than a 10% down payment at closing, you’ll pay mortgage insurance premiums for the life of your loan — unless you refinance into a conventional loan. If you have at least 20% equity at the time of your refi, you’ll also avoid private mortgage insurance costs on your new loan.
How to lower your refinance costs
Step 1 Improve your creditworthiness. A credit history free of blemishes and a good credit score can give you the leverage you need to access the best refinance offers. Pay your bills on time, reduce your outstanding debt and dispute any credit report errors you find.
Step 2 Shop around with multiple lenders. You won’t really know whether you’re getting the best deal if you don’t comparison shop. Apply for a loan with three to five lenders and compare their refinance fees.
Step 3 Negotiate your refi costs. Some of the fees associated with refinancing can be negotiated. A lender might be willing to reduce or waive some, especially application or origination fees. Speak up and ask for a better deal.
Step 4 Consider a no-closing-cost refi. If you don’t have the cash to pay the full cost to refinance your mortgage upfront, a no-closing-cost refinance is an option. It’s not a free refinance, though — your lender will either charge you a higher interest rate or add the closing costs to your new loan balance, which costs you more money over time.