If you’re prepared to refinance your current mortgage for a better one, be sure to consider your estimated closing costs. Knowing the entire cost of refinancing your mortgage will enable you to determine whether you’re actually receiving the best possible deal.
Thinking of refinancing your mortgage? It’s a smart move for many homeowners, but it’s important to understand the costs involved before you dive in Closing costs can vary depending on several factors, including the size of your loan, your credit score, and the lender you choose.
In this guide we’ll break down everything you need to know about mortgage refinance closing costs in 2024. including:
- What are closing costs?
- How much are typical closing costs?
- Factors that affect closing costs
- How to reduce closing costs
- No-closing-cost refinances: Are they worth it?
Let’s dive in!
What Are Mortgage Refinance Closing Costs?
Closing costs are the fees and expenses associated with refinancing your mortgage. These costs can include a variety of items such as:
- Loan origination fee: This is a fee charged by the lender for processing your loan application.
- Appraisal fee: This is the cost of having your home appraised to determine its current market value.
- Credit report fee: This is the cost of obtaining your credit report and score.
- Document preparation fee: This is the fee for preparing the legal documents for your refinance.
- Title search/insurance fee: This is the cost of searching for any liens or encumbrances on your property and insuring the lender against any title defects.
- Government recording fees: These are fees charged by the government for recording the new mortgage.
- Prepaid interest: This is the interest that accrues on your new loan from the closing date until your first mortgage payment is due.
- Escrow fees: These are fees for setting up and maintaining an escrow account for property taxes and homeowners insurance.
It’s crucial to remember that closing costs might change based on the lender and the particulars of your loan. Some lenders may charge additional fees, while others may offer discounts or credits.
How Much Are Typical Closing Costs?
ClosingCorp reports that the average closing costs for a refinance of a single-family home in 2021 were $2,375. This does not include taxes or recording fees. But keep in mind that this is only an average, so your actual closing costs might be different.
Here’s a breakdown of the typical closing costs for a $200,000 refinance:
- Loan origination fee: $1,000
- Appraisal fee: $500
- Credit report fee: $100
- Document preparation fee: $200
- Title search/insurance fee: $500
- Government recording fees: $100
- Prepaid interest: $200
- Escrow fees: $100
Total closing costs: $2,600
Of course, these are just estimates. Your actual closing costs will vary depending on your specific circumstances.
Factors That Affect Closing Costs
Several factors can affect the amount of your closing costs, including:
- The size of your loan: The larger the loan, the higher the closing costs will typically be.
- Your credit score: A higher credit score can qualify you for lower interest rates and fees.
- The type of loan you choose: Some types of loans, such as FHA loans, have higher closing costs than others.
- The lender you choose: Different lenders have different fee structures.
- The location of your property: Closing costs can vary depending on the state you live in.
How to Reduce Closing Costs
There are a few things you can do to reduce your closing costs:
- Shop around for a lender: Compare closing costs from multiple lenders before you choose one.
- Negotiate: Don’t be afraid to negotiate with the lender on the closing costs.
- Ask for credits: Some lenders offer credits for certain closing costs, such as the appraisal fee or the credit report fee.
- Pay some closing costs upfront: If you can afford it, paying some closing costs upfront can save you money on interest over the life of your loan.
- Choose a no-closing-cost refinance: This option allows you to finance your closing costs into your loan, so you don’t have to pay them upfront. However, this will increase the total cost of your loan over time.
No-Closing-Cost Refinances: Are They Worth It?
A no-closing-cost refinance may seem like a good deal, but it’s important to understand the trade-offs. When you choose a no-closing-cost refinance, the lender will typically raise your interest rate or add the closing costs to your loan amount. This means you’ll pay more interest over the life of your loan.
Whether or not a no-closing-cost refinance is worth it depends on your individual circumstances. If you plan to stay in your home for a long time, the higher interest rate may not be a big deal. However, if you plan to sell your home within a few years, you may end up paying more in interest than you would have saved on closing costs.
Refinancing your mortgage can be a great way to save money on your monthly payments or tap into your home equity. However, it’s important to understand the closing costs involved before you decide to refinance. By shopping around for a lender, negotiating fees, and considering a no-closing-cost refinance, you can minimize your closing costs and get the best deal on your refinance.
How much are refinance closing costs?
You’ll typically pay mortgage refinance closing costs ranging from 2% to 6% of your loan amount, depending on the loan size. National average closing costs for a single-family home refinance were $2,375 without taxes or recording fees, according to 2021 data from ClosingCorp, a real estate data and technology provider. That’s an increase of $88 from the 2020 closing cost figures.
As was previously mentioned, some closing costs are regarded as “flat” or fixed fees, meaning they remain the same regardless of the amount of your loan. Others are percentage-based, meaning they’ll vary based on your loan amount.
Common percentage-based mortgage refinance closing costs
| Refinance cost | How much? |
|---|---|
| Loan origination/underwriting fee | 0% to 1.5% of loan amount |
| Mortgage points | 1% of the loan amount per point |
| Mortgage insurance |
|
Loan origination/underwriting fee.
Lenders incur costs during the loan origination process, so consider the fee as your means of informing the bank that you plan to move forward with the procedure. This charge typically covers the cost to the lender of paying an origination loan officer and paying the underwriter to evaluate your ability to repay the loan.
Mortgage points.
You can pay mortgage points—also referred to as discount points—to your lender at closing in order to lower your mortgage interest rate. Every point is equivalent to 1% of the loan amount and can reduce your interest rate by as much as 200 25%. To obtain a lower interest rate, for instance, you will need to pay an extra $1,000 if you choose to purchase one point on a $100,000 mortgage. If you were originally quoted a 6. 75% rate on that loan and bought a point to get your rate down to 6. 5%, you could save nearly $6,000 in interest over the life of a 30-year loan term.
Mortgage insurance.
If you own a home with equity of at least 2020 percent, you will not be required to pay any private mortgage insurance (PMI) to mitigate the risk that you may default on a conventional mortgage. However, loans backed by the Federal Housing Administration (FHA), U. S. Department of Veterans Affairs (VA) and U. S. Regardless of your equity, the Department of Agriculture (USDA) requires mortgage insurance or some other kind of guarantee fee.
You might want to maintain your escrow account feature with your new refinance if you currently use it to pay your homeowners insurance and property taxes. If so, the lender will have to open a new escrow account and gather enough insurance and property taxes to pay those obligations when they become due each year.
You may, however, end up receiving a refund for the majority of the money you paid for a refinance escrow account because federal law mandates that your current lender return any escrow balance to you within 20 days of paying off your original loan balance.
$300,000 Home Mortgage Refinance Closing Costs Explained
FAQ
Are closing costs cheaper when refinancing?
How can I avoid closing costs on a refinance?
What are the average fees for refinancing a home?
Do you need a down payment to refinance?
What are refinance closing costs?
Refinance closing costs are fees and expenses related to replacing your existing mortgage balance with a new one. They typically include many of the same fees you paid when you first closed on your home loan.
How much does a refinance cost?
Origination fees also typically cost around 0.5% – 1% of the total loan amount. Other expenses that might be included in your refinance closing costs include a recording fee (if you’re updating ownership of the property), a credit report fee and an underwriting fee. You can expect to pay around 3% – 6% of your loan balance in closing costs.
How much do mortgage closing costs cost?
Closing costs are usually 2% to 5% of the loan amount. If no loan is involved, the percentage may be as low as 1%. Paying mortgage discount points to lower your rate can be another significant, yet optional cost. If you pay one point or 1% of the loan amount, you can potentially lower your rate by 0.25 percentage points.
Should you refinance with no closing costs?
Lenders may offer you a new loan with no refinance closing costs. While a no-closing-cost refinance may keep you from spending a chunk of money out of your pocket at closing, you actually pay for it over the life of your loan.