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Refinancing your mortgage can present a way to reduce your interest rate and mortgage payment, or cash out home equity. As you plan ahead for one, you may be wondering, “How much does it cost to refinance a mortgage?” Here’s a quick breakdown of potential costs and things to consider.
How much should closing costs be on a refinance?
Closing costs for refinances are typically 2–6% of the loan amount based on how a loan is structured. On a $100,000 home loan, that would be up to $6,000. The final cost may be higher or lower depending on factors such as how much a borrower needs to pay in pre-paid taxes, which are unique to each property. Depending on the lender and loan type, many borrowers are able opt for no-closing-cost loans. They either roll the closing costs into their loan or pay a higher mortgage rate that’s designed to cover the costs over time. Both options result in a higher payment but keep upfront out-of-pocket expenses down.
Homeowners who save money by refinancing also often recoup their closing costs in a few years or less because of their lower mortgage payment. For example, if you save $300 a month by refinancing and have $3,000 in closing costs, you’ll recoup that expense in savings over 10 months ($300 x 10 = $3,000). So, what’s the final answer to “how much does it cost to refinance your house?” It can vary based on your financial needs and how your loan is structured.
The closing costs involved in your refinance will likely be similar to the closing costs you paid for your original mortgage. Some common expenses include:
Appraisal fee: Depending on your loan type, lenders may require an appraisal to evaluate your home’s condition and to determine its value.
Attorney fees: Some (but not all) states require that an attorney be at your closing. An attorney may also be paid for services such as a title search and preparing and examining documents.
Discount points: Mortgage points or discount points allow you to pay some of the interest on your loan upfront in exchange for a lower interest rate over the life of your loan. One discount point costs 1% of your mortgage amount. For example, if you have a $100,000 loan, one point would equal $1,000.
Escrow deposit: Your new loan might require an escrow deposit which will include a portion of your homeowners insurance premium plus property taxes. Your lender will hold them in an escrow account until you begin making mortgage payments. While you refinance, you may consider changing insurers to reduce costs, or double-check that your home isn’t underinsured.
Escrow fees: Escrow fees are paid to the escrow company, title company, or attorney that overlooks your transaction as a neutral third party. They ensure all parties associated with your mortgage are paid appropriately. This is not to be confused with the escrow deposit, which includes your property taxes and insurance.
Inspection fee: Traditional home inspections generally aren’t required for a refinance, but some lenders may require it and/or a termite inspection. You may also need to pay this cost out of pocket versus rolling it into your loan.
Interim interest: This is pre-paid interest that covers the “interim” period between when a loan closes and when its first monthly payment after closing is due. For example, if your loan closes on Jan. 15 and your first monthly payment after closing is due Feb. 1, the interim interest would cover interest from Jan. 15–Jan. 31.
Lending fees or mortgage origination fees: Since most loans come from a mortgage company or private bank, there are overhead fees that cover work done on your loan. Lending fees essentially cover the behind-the-scenes, administrative costs—application fees, underwriting fees, origination fees, etc.
Private mortgage insurance (PMI): Even if you didn’t have private mortgage insurance (PMI) on your original mortgage, it might be a part of the cost to refinance. Lenders typically require PMI when a buyer has less than 20% available equity in a home loan. The PMI protects the lender in case a borrower defaults on a loan.
Survey fee: A new survey may be needed to verify your property lines.
Title fee: A title fee is paid to a title company that researches property deeds and makes sure no one else has a claim to the property you are refinancing. This is also known as a title search.
Start your refinance today. Whether you’re looking to lower your payment, consolidate debt, or get cash out, refinancing your current mortgage could be easier than you think. Call us at 833-702-2511 or contact us online to get started.
A cash‐out refinance increases your mortgage debt and reduces the equity you may have in your home. Your monthly mortgage payments may be higher. A debt consolidation refinance increases your mortgage debt, reduces equity, and extends the term on shorter‐term debt and secures such debts with your home. The relative benefits you receive from debt consolidation will vary depending on your individual circumstances. You should consider that a debt consolidation loan may increase the total number of monthly payments and the total amount paid over the term of the loan. To enjoy the benefits of a debt consolidation loan, you should not carry new credit card or high interest rate debt.