How Much Does It Cost to Refinance a Mortgage?
You could save thousands of dollars refinancing your mortgage, but just like a new home loan, a refinance comes with closing costs that could affect your short- and long-term finances.
The cost to refinance a mortgage ranges from 2% to 6% of your loan amount, depending on several factors, including:
- Your loan size
- Your lender
- Your location
- Your credit score
- Your available home equity
- Mortgage term
- Mortgage type
- Mortgage program
- Property type
- Occupancy type
Before refinancing, consider how much you’ll pay in closing costs versus how much you could save over time.
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Common mortgage refinance fees
The table below breaks down some of the typical costs associated with a refinance.
| Type of fee | Amount |
| Application fee | $75 to $500 |
| Origination fee | Up to 1.5% of loan amount |
| Credit report fee | $10 to $100 |
| Document preparation fee | $50 to $600 |
| Home appraisal | $225 to $700 |
| 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 |
| Mortgage insurance | Conventional loans:
0.15% to 1.95% of the loan amount annually |
| FHA loans:
1.75% upfront premium 0.45% to 1.05% of the loan amount annually |
|
| VA loans:
0.5% to 3.6% for upfront VA funding fee |
|
| USDA loans:
1% upfront guarantee fee 0.35% annual guarantee fee |
Before you go through a refinance, you want to make sure that it actually makes sense for your financial situation. To do so, calculate your “break-even point” to ensure the refinance benefit is worth the costs you’ll pay. The calculation is easy: Divide the total refinance closing costs by your estimated monthly savings. The result is the number of months you’d need to stay in your home to recoup your costs.
For example, let’s say you can save $200 per month with a refinance that costs you $5,000. When you divide the $5,000 closing costs by the $200 monthly savings, the result is 25. The bottom line: If you stay in your home for at least 25 months — a little more than two years — the refinance makes sense.
5 reasons to refinance your mortgage
There are several reasons to consider a mortgage refinance:
- Lower your interest rate. A loan with a lower mortgage rate reduces your monthly mortgage payment and lifetime interest costs. If your credit history has improved since you took out your current loan, you could refinance and get a lower rate. Your monthly savings amount depends on your new rate and the cost to refinance into a new loan. Use a refinance calculator to help you better estimate your bottom line.
- Change your loan term. You can pay off your mortgage earlier with a shorter term or stretch out your term to get a lower monthly payment. There are trade-offs involved in either choice. Refinancing from a 30-year to a 15-year mortgage could help you lock in a lower rate and save on interest costs, as long as you can afford a much higher monthly payment. 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. With a cash-out refinance, you can improve your loan terms and access your available home equity at the same time. You’ll take out a new mortgage for a larger amount than you currently owe and pocket the difference in cash to accomplish other financial goals, like making home improvements or covering college costs. Use our cash-out refinance calculator to crunch the numbers and determine whether this option makes sense.
- Convert an ARM to a fixed-rate mortgage. An adjustable-rate mortgage (ARM) is a loan that has a low, initial fixed rate for the first few years and then changes based on the terms of the ARM you choose. A portion of your ARM payment is based on an “index,” which is a benchmark rate that fluctuates based on market factors, which could make your payment unaffordable if rates spike over time. Converting your ARM to a fixed-rate loan gives you the stability of a predictable monthly payment.
- 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 when you refinance, you won’t pay private mortgage insurance costs on your new loan.
4 steps to lower your refinance costs
STEP 1:Improve your credit score. A credit score of at least 740 will typically get you the lowest rate and costs and may even make the refinance approval process easier. To boost your score, pay your bills on time, pay down or pay off your credit card balances and dispute any credit report errors you find.
STEP 2:Shop around with multiple lenders. You won’t know whether you’re getting the best refinance 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. Don’t be afraid to ask for a better deal. You can negotiate some of the fees associated with refinancing. A lender might reduce or waive some fees, especially application or origination fees.
STEP 4:Consider a no-closing-cost refi. If you don’t have the cash to pay the full cost to refinance your mortgage up front, ask your lender about a no-closing-cost refinance option. Don’t be fooled by the name though — your lender will either charge you a higher interest rate or add the closing costs to your new loan balance, which spreads your closing costs payment over your loan’s term.