Considering refinancing? The cost to refinance a mortgage can vary dramatically from state to state and from lender to lender. Lowering the monthly house payment – in fact, lowering the full amount they'll pay for their home – is a primary concern among homeowners considering refinancing. But there's so much more to contemplate when evaluating potential savings. Mortgage costs are essential in determining whether the prospective refinancing is a viable, financially sound move now that interest rates remain favorable.
How Much Does It Cost to Refinance?
Not all states/municipalities charge the same fees. Here's a breakdown of the ten most common charges to expect when refinancing a mortgage:
Mortgage Application FeeLenders may charge around 1% of the total loan just to process the mortgage application – whether it's approved or not. Expect to pay anywhere from $75 to $300.
Home Appraisal ChargesEven though the home was appraised at the time of the original mortgage, the lender may want to assess the current market value and have the borrower pay for it. Expect to pay between $225 and $700.
Loan Origination FeesLenders assess fees at the time of initiating the loan to cover potential risk before submitting it to an underwriter. Expect to pay from 1-1.5% of the total principal.
Documents Preparation FeeThe lender will charge for preparing key documents, including the refinanced mortgage, the note, and truth-in-lending statements required for consumers. Expect to pay $200-$500.
Title Search FeeA title company will be engaged to research court records, prior deeds, and property databases to ensure the title is free and clear of liens or other encumbrances. Expect to pay from $700-$900 for the search, including title insurance that protects the borrower against losses caused by legal issues with the title search.
Recording FeeRecording fees are assessed to have the refinancing part of the public record. They are determined by the government organizations in each state or community. Expect to pay from $25 to $250.
Flood certificationHomeowners of property located in a federally designated flood zone may be required to add flood or life of loan insurance coverage. To get a certification, expect to pay $50 to $150.
Inspection feeAn inspection is different from an appraisal. The lender may require the borrower to pay for an inspection of the home's plumbing, electrical, HVAC, roofing, and for insects/pests. Expect to pay $175 to $300.
Attorney feesAttorneys for the lender and borrower will go over the closing documentation. This is not required in all states. Expect to pay anywhere from $500 to $1,000.
Survey feeA professional survey will ensure boundary lines on the property are followed without issues or encroachment by adjacent properties. Expect to pay between $150 and $400.
Total Estimated Cost to Refinance
All totaled, the cost to refinance can run from $2,000-$5,000. Given that the total cost to refinance a mortgage is variable based on location (state regulations) and the lender, consumers should search live rates and get multiple offers to find the least-expensive plan.
How Do Refinance Costs Differ By State?
Closing costs may vary dramatically from state to state. That's because each state assesses its own charges/requirements based on state law. For example, there are no state taxes assessed on mortgage transactions in some states (such as Florida), while others require none (including Colorado). A Bankrate survey for 2016 found closing costs averaging $1,837 in Pennsylvania, while the average closing costs in Hawaii topped $2,600. Higher closing averages in Hawaii were due in part to higher broker, lender or originator fees -- and higher loan processing fees. The higher fees more than offset the customary Pennsylvania origination fees and underwriting charges that are not leveed in Hawaii.
Coping With Refinance Costs
There are a number of ways to take the sting out of refinancing costs. The most obvious one is to negotiate the costs with the lender.
Negotiate with the LenderSome lender charges are fixed in stone, but other closing costs are negotiable. For example, if the home has had a recent appraisal, borrowers should ask the lender to drop the requirement. Ask the lender if the processing or application fees can be waived to lower the entire origination fee. See if you can use outside vendors to perform the inspections, title search, and title insurance rather than using services provided by the lender.
Roll Closing Costs into the MortgageFinally, at the time of seeking offers, ask potential lenders to provide low-cost or zero-cost offers. These programs typically increase the interest rate to offset closing costs. Monthly payments can go up $10-$20 dollars to pay for the costs. Borrowers may also be able to circumvent the interest hike if they have sufficient equity in the home. In comparing offers, it can be useful to ask a potential lender to match the closing costs from another offer. But be sure to compare the total cost to refinance the mortgage -- principal, interest, and refinancing/closing costs over the life of the loan. A lender may allow the applicant to borrow for the closing costs, rolling them into the mortgage, but be prepared to pay interest on the costs until the charges are paid down.
Considering refinancing? Start by getting your credit score for free at LendingTree.
Should I Refinance?
Homeowners should always consider whether they plan on remaining in the house long enough to reap the potential savings from refinancing their mortgage. LendingTree's Refinancing Calculator can determine the break-even point where monthly savings have finally covered the cost of refinancing. Variables include the current mortgage interest rate, the potential new rate, the term, and closing costs of the refinance. The calculator also reveals potential break-even points than can be accelerated when the borrower pays points at closing. For example:
- LendingTree's calculator determines that if refinancing costs tally $2,000 and the new rate saves $50 a month in interest, the breakeven point is 40 months.
- In the case of paying points to lower the rate: take the number of monthly payments at the original interest rate; deduct the amount the payment will be after paying a point for a lower rate; then calculate how many payments needed to reach the break-even on the cost for the point. On a $200,000 loan, where it costs $2,000 to buy a point:
Original rate: 5.125
Rate with one point: 4.975
Monthly payment savings: $30.55
Break-even point: 65.4 months
Of course, the savings from paying down points depends upon whether the owner can stay in the home for at least five years. Make an informed decision on whether the savings recouped from a mortgage refinancing justifies the costs. Knowing each fee and negotiating with the lender can spell the difference between overpaying or saving cash.