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Eric McWhinnie
When you take out a mortgage refinance loan, you're required to pay closing costs for refinancing. The costs vary by lender, as well as location and other factors. Some lenders may advertise no-closing-cost mortgage refinance loans, but you'll always pay closing fees one way or the other.
If you don't pay them up front, you'll either pay a higher interest rate or the costs will be rolled into your loan. Here's what you can expect when it comes to closing costs for refinancing your mortgage.
What are mortgage refinance closing costs?
Mortgage refinance closing costs are fees borrowers must pay when they secure a refinance loan. A refinance loan replaces your existing mortgage with a new one.
Depending on the lender, some closing costs may be negotiable. It is essential to ask for an itemized list of the closing costs and negotiate with the lender to reduce the fees where possible.
Some refinancing fees are charged by lenders, such as application fees and origination or underwriting fees. You'll pay others to third parties, such as credit check fees or appraisal fees, but they are still required. Lenders want to ensure you're a well-qualified borrower and your home is valued highly enough to guarantee the loan.
How much are refinance closing costs?
This cost is often a percentage of the loan amount, with the average closing cost ranging between 2% and 6% of the total loan amount. So if you are refinancing a home for $500,000, you can expect to pay $10,000 to $30,000 in costs.
According to Freddie Mac, the average closing costs are $5,000, but the total amount you pay depends on various factors such as the size of your loan, your state, and the county you live in.
Bear in mind that some of the best refinancing lenders don't charge origination fees, which could lower your costs. On the other hand, closing costs could be higher if you decide to pay for extra discount points to buy down your interest rate. Or if you choose a mortgage lender that charges a high application fee.
What is included in refinancing closing costs?
When you refinance, you'll have to pay for a number of different expenses. Here are some of the refinancing closing costs you can expect.
Application and origination fees
Some lenders charge application fees of between $75 and $500. Many also charge a separate origination fee for the cost of underwriting the loan. This is typically between 0.5% and 1.5% of the total loan value.
On a $500,000 refinance loan, your origination fee could run as high as $7,500. These fees will be specified in your closing disclosure.
Credit report costs
Lenders will check your credit report to understand your borrowing history. The reporting agencies charge a fee of $10 to $100, which you will have to pay.
Appraisal, survey, and inspection
Your lender may require a careful evaluation of your property. It wants to know it's valued highly enough to offer sufficient collateral on the loan. This can include:
- An appraisal, which costs between $250 and $700. A professional will compare your home to others on the market to determine its value.
- A survey, which can cost between $150 to $500. It's designed to determine the boundary lines of your property and see whether there are any easements. An easement is where someone else has certain rights to use your property.
- An inspection, which costs between $175 and $500. This will ensure there are no major structural problems with your property,
Flood certification
Flood certification is $15 to $25. It will determine whether the property is located in a flood zone. If so, you'll likely be required to pay ongoing flood insurance.
Title search and title insurance
A title search identifies any outstanding claims on your property. And title insurance protects against loss in case a title search misses a defect. You can expect to pay between $400 and $1,000 for these services.
Closing costs
Closing costs of $500 to $1,000 may be charged by the attorneys or title companies that officially close on your refinance loan.
Early payoff
Some mortgage loans have prepayment penalties, meaning there's a fee to pay off your mortgage early. Prepayment penalties on conforming loans were prohibited on Jan. 10, 2014. However, if your loan is nonconforming or was obtained prior to that time, you may owe a prepayment penalty. It could be as high as 2% of your loan balance. The fee declines over time, so the longer you've had your original loan, the lower the fee.
Discount points
Discount points are optional. You can pay extra at closing to reduce your interest rate. You can choose to reduce your interest rate by 0.25% for each point you buy. Points generally cost 1% of your loan amount. Refinancing rates are very competitive right now and discount points could reduce your interest costs even further.
Mortgage insurance premiums
You'll usually have to pay mortgage insurance if the loan amount is more than 80% of the value of your property. Insurance premiums are normally added to your monthly mortgage loan payment. But for some loans, such as an FHA loan, you may also have to pay an upfront mortgage insurance premium of between 0.5% and 1.75% of your loan.
How to reduce closing costs
The good news is that there are ways to reduce the closing costs of refinancing. One of the easiest ways is to compare offers from different lenders.
Shop around and compare the fees and interest rates from a few different lenders to ensure you are getting the best deal. Additionally, you can negotiate with your lender to see if it is willing to reduce some of the closing costs.
Some lenders may offer promotions that can help reduce the closing costs, making refinancing more affordable.
Still have questions?
Here are some other questions we've answered:
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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Closing costs for refinancing are costs you must pay when you secure a new refinance loan to pay off your existing home mortgage.
Average closing costs for a refinance loan come to around $5,000, but yours will be determined based on the specifics of your loan. Closing costs must always be paid. Some lenders allow you to roll them into your loan balance or pay a higher interest rate to avoid upfront expenditures. No-closing-cost mortgages still involve fees. They are simply paid over time rather than up front.
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Refinancing closing costs usually include:
- Loan origination fees (0.5% to 1.5% of loan amount)
- Application fees ($75 to $500)
- Credit report ($10 to $100)
- Appraisal and inspection ($425 to $1,200 for both)
- Survey ($150 to $500)
- Flood certification ($15 to $25)
- Title search costs ($400 to $1,000)
- Closing fee ($500 to $1,000)
You may also have to pay a prepayment penalty. This depends on the type of mortgage and age of your loan. You can also decide to pay discount points to reduce your interest rate. They typically cost 1% of your loan amount and reduce your loan interest rate by 0.25%. And you may have to pay upfront mortgage insurance premiums, depending on the amount you borrow relative to the value of your property.
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Refinancing closing costs are determined by your lender and the amount borrowed. Average refinancing closing costs are $5,000 according to Freddie Mac. But they can run between 2% and 6% of the total amount borrowed. That means you'd likely pay anywhere from $5,000 to $15,000 to refinance $250,000 of mortgage debt.
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Christy Bieber is a full-time personal finance and legal writer with more than a decade of experience. She has a JD from UCLA as well as a degree in English, Media and Communications with a Certificate in Business Management from the University of Rochester. In addition to writing for The Ascent and The Motley Fool, her work has also been featured regularly on MSN Money, CNBC, and USA Today. She also ghost writes textbooks, serves as a subject matter expert for online course design, and is a former college instructor.
David S. Chang, ChFC®, CLU® is an award-winning entrepreneur, keynote speaker, author, and consultant. He has over two decades of experience in the wealth management space and has been featured in dozens of news, radio, and podcast programs nationwide. He currently works as Head of IoT for the West Region of a Fortune 200 company. He is a graduate of the United States Military Academy at West Point and currently a Lieutenant Colonel in the California Army National Guard. He is an East-West Graduate Degree Fellow and has an MBA from the UCLA Anderson School of Management.
Fact Checked
Eric McWhinnie
Eric McWhinnie has been writing and editing digital content since 2010. He specializes in personal finance and investing. He also holds a bachelor’s degree in Finance.
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