What are the Costs of Refinancing
Refinance closing costs often run roughly 2% to 5% of the loan amount. They include lender or broker fees, appraisal, title and escrow charges, recording fees, credit reports, and sometimes points or mortgage insurance. You can pay them in cash, finance them into the loan, or trade them for a higher rate.
Key Takeaways
- Plan for roughly 2% to 5% of the loan amount in total costs, depending on the loan, county and options.
- Your Loan Estimate lists the costs, and lender and broker fees cannot increase between the estimate and closing.
- No-closing-cost refinances shift the cost into a higher rate or a larger balance. They are a trade-off, not free money.
- Compare costs against savings with the break-even calculator before you choose.
How much does it cost to refinance?
The range depends on loan size, location and structure. Here is what 2% to 5% looks like in dollars:
| Loan amount | 2% | 3% | 5% |
|---|---|---|---|
| $400,000 | $8,000 | $12,000 | $20,000 |
| $600,000 | $12,000 | $18,000 | $30,000 |
| $800,000 | $16,000 | $24,000 | $40,000 |
| $1,000,000 | $20,000 | $30,000 | $50,000 |
Larger loans often cost a smaller percentage, since many fees are fixed, while points and some charges rise with the loan amount. These are planning ranges, not quotes.
What are the types of refinance costs?
Lender and broker charges
- Origination or broker fee: pays for taking the application, underwriting and processing. It may be a flat amount or a percentage.
- Discount points: optional upfront interest you pay to reduce the rate. One point equals 1% of the loan amount.
- Underwriting and processing fees: may be separate lines depending on the lender.
Third-party charges
- Appraisal: required on most refinances. See using a new appraisal.
- Credit report, flood certification and tax service fees.
- Title insurance and title search: the lender’s policy protects the new loan.
- Escrow or settlement fee: paid to the closing company.
- Recording fees: paid to the county to record the new deed of trust.
Mortgage insurance and program fees
- FHA: upfront mortgage insurance premium is 1.75% of the loan amount and can usually be financed, plus annual premium.
- VA: the IRRRL funding fee is 0.50%, and the cash-out funding fee is 2.15% for first use and 3.30% for subsequent use. Some veterans are exempt.
- Conventional PMI: typically roughly 0.3% to 1.5% of the loan per year if you have less than 20% equity.
Prepaids and escrow deposits
You may need to fund new impound accounts for property taxes and homeowners insurance, and pay prepaid interest from closing to the end of that month. These are not fees, since the money is for bills you would pay anyway, but they raise the cash you need at closing. Your old escrow balance is generally refunded after the old loan is paid off.
What is a no-closing-cost refinance?
It means you do not pay the costs at closing. The costs are still paid, in one of two ways:
- Lender credit: the lender or broker covers the costs in exchange for a higher interest rate. You pay more each month for as long as you keep the loan.
- Financing the costs: the costs are added to your balance. You borrow more and pay interest on it.
Using an example 6.5% rate on a 30-year term, adding $12,000 to the balance raises principal and interest by about $76 a month. At that rate, the extra balance costs more than $27,000 in payments over 30 years if you keep the loan to the end, which is $76 x 360 = $27,360 (approximate). This option can make sense if you may move or refinance again within a few years, or if you are short on cash. It makes less sense if you plan to stay a long time and could pay the costs once. These rates and amounts are illustrations only.
How can I lower my refinance costs?
- Compare Loan Estimates from more than one source for the same loan amount, term and points.
- Ask which fees are negotiable, such as broker fees and points, and which are set by third parties.
- Ask whether the title company offers a reissue or refinance rate on the title policy.
- Skip optional points if you may not stay long enough to recover them.
- Choose a streamline program if you hold an FHA or VA loan and qualify. See FHA streamline refinance and VA IRRRL.
How do the Loan Estimate and Closing Disclosure protect me?
You should receive a Loan Estimate within 3 business days of applying. You must receive the Closing Disclosure at least 3 business days before closing. Lender and broker fees generally cannot increase between the two. Certain third-party fees can rise by up to 10% in total, and others can change. Compare the documents line by line. Our TRID guide explains the details.
Put the numbers into factoring in the costs or the break-even calculator, and see how much you could save. The chapter overview is refinancing a home.
At Lendia, we explain every line
At Lendia, we compare options from multiple lenders and walk through each line of your Loan Estimate, including no-closing-cost choices and their trade-offs. Contact us or get a rate quote now.
Frequently Asked Questions
Can I roll closing costs into my refinance?
Often yes, within the program’s loan-to-value limits. The balance and payment rise, so include that in your math.
Are refinance closing costs tax deductible?
Some items, such as points, may be treated specially. Ask a tax professional because it depends on your situation.
Is there such a thing as a free refinance?
Not really. Someone pays the costs, either through a higher rate or a larger loan. Sometimes that is still the right choice.
Do I get my escrow money back?
Generally, your old servicer refunds the balance of your old escrow account after payoff, while you fund a new one at closing.
Are costs lower for a streamline refinance?
Often, since there may be no appraisal and less underwriting, but program fees still apply.
Rates and terms depend on your situation; approval requires qualification.
Talk to a Licensed Lendia California Loan Officer
At Lendia, we review your situation and show you the programs you qualify for.