How Much Does It Cost to Refinance a Mortgage?

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Mortgage refinance can help borrowers save money on interest and lower their monthly payments, but it’s important to understand all the associated costs to ensure it’s worth it.

Mortgage refinancing costs are similar to the closing costs you pay when you buy a house. That’s because refinancing means replacing your current mortgage with a new home loan, often with an entirely new lender.

Borrowers who refinance have to foot the bill for loan underwriting fees, a home appraisal and title search fees, among other costs. These expenses can add up, so if your goal is to save money, you should calculate if and when your savings from a lower interest rate will make up the cost of refinancing.

Here’s what you need to know about how much it will cost to refinance a mortgage:

Table of contents

• Typical costs to refinance a mortgage
• Factors that affect how much mortgage refinancing costs
• How can I save money on refinancing costs?
• Is refinancing a mortgage worth the cost?
• FAQs about the cost of refinancing a mortgage

How much does it cost to refinance a mortgage?

The cost to refinance a mortgage is typically 3% to 6% of the loan amount. For example, a homeowner could expect to pay between $4,500 and $9,000 when refinancing an outstanding mortgage balance of $150,000.

Refinancing costs are about the same as the closing costs for a home purchase. The big difference is that a down payment isn’t necessary when you refinance because borrowers already have equity in their home. However, the actual cost to refinance your mortgage will vary widely based on the type of loan you’re getting, whether or not you choose to buy discount points, the fees your lender is charging and what other paperwork your bank will require.

What are all the costs to refinance a mortgage?

Refinancing a mortgage involves more costs than you might think. Whether you’re considering a refinance now or just trying to get a sense of how much money you would need to do it in the future if rates fall, here are the main costs to have on your radar:

• Loan origination fees: Usually 0.5% to 1% of the amount of your mortgage

• Loan application fees: Usually a few hundred dollars

• Title service fees: Includes a title search fee, title insurance and other costs

• Cost of the home appraisal: Typically about $500

• Discount points: Cost based on the loan amount and loan type.

• Other fees, if applicable: Examples include attorney fees, survey fees, credit report fees and government recording fees

Factors that affect how much mortgage refinancing costs

Several factors influence how much you actually end up paying to refinance your mortgage. Here’s what you should pay attention to:

Loan amount

Your loan amount exerts the most significant influence on the price of your refinancing costs. Since many of the larger expenses are based on a percentage of your new loan, the more you borrow, the more you’ll pay. For example, origination fees are based on a percentage of your loan amount, as is any kind of upfront mortgage insurance that you may be required to prepay.

You can minimize these fees by only refinancing for the amount you need rather than the amount the lender offers. Just because they will give you 90% of your home’s equity, for example, doesn’t mean you have to take it. You can always opt to borrow less and pay lower fees.

Credit

With a good credit score, you will qualify for better interest rates, and you may also save money on refinancing costs. Mortgage lenders are more eager to work with loan applicants who have good credit, so they may offer you a lower origination fee if your credit profile is exceptional.

Location

Refinance closing costs depend on the home’s location. The cost of labor in the area affects the cost of almost every step of the mortgage refinance process. For example, appraisals to determine a home’s value tend to be more expensive in high-cost-of-living areas as well as remote areas where more travel is required.

In addition, if your loan will be escrowing for insurance and taxes, both items are highly location-specific in regard to pricing. A house in Springfield, Missouri, will have significantly lower taxes and insurance than one in Palm Beach, Florida. You’ll have to come up with a much smaller amount of money for prepaid escrow items in Springfield than in Palm Beach.

Type of loan

Some closing costs may be slightly lower for government-backed loans compared to conventional loans. Government-backed loans include FHA loans, VA loans and USDA loans. Origination fees for VA loans, for example, can’t exceed 1% of the loan amount.

However, depending on how much of your equity you borrow, you may have to pay additional or higher fees that may not be required for conventional loans. For example, upfront mortgage insurance for an FHA loan is often much higher than for a conventional loan.

In addition to the loan type, the specific type of refinance can also affect the total costs. Streamline refinancing is usually cheaper, while a cash-out refinance can be more expensive than a typical refinance.

No-closing-cost refinancing is the cheapest option in terms of initial costs, but it’s important to understand that you will likely have a higher interest rate as a result, meaning you’ll have higher monthly mortgage payments. You’re not avoiding the refinance costs; you’re just not paying them upfront.

How can I save money on refinancing costs?

The most important thing you can do to save money on refinancing costs is to shop around with several different refinance lenders. In addition to comparing refinance rates, compare their origination, application and appraisal fees.

You can also ask your lender to waive or lower fees. This strategy may be a long shot, but it can be worth trying, especially if you have good credit and significant home equity.

Is refinancing a mortgage worth the cost?

As a general rule of thumb, refinancing a mortgage is worth the cost if your new interest rate will be at least 0.75 percentage points lower than your old rate. However, it’s best to use a refinance calculator or consult an expert to determine if the lower interest payments are worth the cost of refinancing in your particular situation.

If you have other goals with your refinance — like eliminating mortgage insurance — you may still consider refinancing even if the interest rate savings are marginal relative to the cost of refinancing.

Ultimately, whether or not it’s worth the cost to refinance depends on how long you plan to have your loan. If you only plan to live in your home for another five years, the equation is very different than if you intend to pay the loan in full and retire in your home.