Refinancing a mortgage is a good way to lower your monthly payments, and given that today's refinance rates are sitting near record lows, it could be a good time to get a new home loan. But there are closing costs involved in refinancing. Here's what you need to know.
How much does it cost to refinance a mortgage in 2021?
Generally speaking, you should expect to pay anywhere from 2% to 5% of the amount of your new loan when you refinance. This means that if you're taking out a new $200,000 mortgage, you should expect to be charged $4,000 to $10,000 in closing costs. However, different refinancing lenders charge different fees to finalize a refinance loan, so the only way to know what you'll be required to pay is to apply and get a quote.
It may also help to know that in the U.S., average closing costs total $5,749. However, if you're taking out a larger mortgage, you should expect to pay more.
What costs are involved with refinancing?
There are a number of refinance closing costs you'll pay when you get a new home loan. Some of these lender fees are negotiable, and some aren't. Here are some common refinancing costs you'll face.
Application and loan origination fees
Some lenders will charge you a fee just to process your application and originate a loan for you. Your application and loan origination fee is one cost that your refinance lender has control over, so it may be negotiable. However, part of that fee will include the cost to run a credit check. Your mortgage lender will need to know your credit score so it can determine if you're a trustworthy borrower, and the fee to check that will be passed on to you.
Appraisal fees
The purpose of an appraisal is for your mortgage refinance lender to get a sense of what your home is worth. Say you're looking to refinance a $200,000 mortgage. Your lender will need to make sure that your home is worth at least that much before loaning you that money. The amount of your appraisal fee will depend on the appraisal service your lender uses and what it charges, as that cost will generally be passed to you. You may, however, be able to shop around for your own appraisal and lower your cost. Before you do, though, make sure your lender will accept that appraisal instead of its own.
It's also worth noting that appraisal fees are sometimes waived for a mortgage refinance. In today's housing market, you're even more likely to find this, what with home values being up across the board.
Title search and insurance
A title search ensures there are no claims to your property you're unaware of, like a lien from an old lender. Title insurance, meanwhile, protects you in case something is missed in your title search. Both are required when you refinance a mortgage, even though that may seem strange given that they took place when you signed your original loan. It may be possible to do your own title search and save some money that way, but you'll still need to pay for title insurance.
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Recording fees
Once you sign a new mortgage, that home loan will need to be entered as a matter of public record. That's where your recording fee comes in. Recording fees are set by local cities or counties and they're not negotiable since your lender has no say in them.
Prepaid property taxes
If you pay property taxes on a quarterly basis, you may need to prepay a portion of them as part of your mortgage refinance. While that will add to your closing costs, it's also an expense you'd eventually have to cover anyway.
Can I lower the cost to refinance my mortgage?
As mentioned earlier, some closing costs, like application and loan origination fees, are negotiable, so it pays to ask your lender to come down on those fees. You can also see if your lender is willing to waive a home appraisal. This is more likely if property values in your neighborhood are up across the board.
In some cases, gathering multiple offers from refinance lenders (whether on your own or with the help of a mortgage broker) could help you walk away with lower closing costs. You may find, for example, that two lenders offer you a comparable interest rate on your new mortgage, but one's closing costs are $500 lower than the other's. In that case, you'd have the option to go back to the lender with the slightly lower interest rate and ask if it will match the closing costs from your other offer.
Closing costs are part of the deal when it comes to refinancing a mortgage. But the good news is that you don't have to pay them up front. Most lenders will let you roll your closing costs into your new loan and pay them off over time. Of course, this will add to your monthly payment, so it's helpful to use a mortgage calculator to see what that number will be. But rest assured that you usually don't have to bring money to your mortgage refinance closing if you don't want to, provided you're willing to take on a higher mortgage payment going forward.
Still have questions?
Here are some other questions we've answered:
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The Ascent's best mortgage refinance lenders
Refinancing your mortgage could save you hundreds of dollars for your monthly mortgage payment and secure you tens of thousands of dollars in long-term savings. Our experts have reviewed the most popular mortgage refinance companies to find the best options. Some of our experts have even used these lenders themselves to cut their costs.
FAQs
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It usually costs 2% to 5% of your mortgage amount to refinance.
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Yes. Your lender may be willing to lower its application and loan origination fees. And you may be able to get your lender to waive a home appraisal when you refinance, which could help keep your costs down.
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There are a number of fees you'll pay when you refinance a mortgage. These include application and origination fees, appraisal fees, title insurance, a title search, recording fees, and prepaid property taxes.
About the Author
Maurie Backman is a personal finance writer who covers topics ranging from Social Security to credit cards to mortgages to REITs. She also has an editing background and appears on live podcasts to talk about financial matters.
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