This content is created by AP Buyline in accordance with AP’s editorial guidelines and supervised and edited by AP staff. Our evaluations and opinions are not influenced by our advertising relationships, but we may earn commissions from our partners’ links in this content. Learn more about AP Buyline here.
In a nutshell
Refinancing could lower your mortgage payments and save you a bundle in interest, but it isn’t free.
- When refinancing your mortgage, you can expect to pay between 2% and 6% of the loan amount in closing costs and fees.
- Consider using a mortgage refinance calculator to get a more accurate estimate of closing costs.
- Weigh the cost of refinancing against its potential benefits to determine if it’s a smart financial move.
How much do different costs add to your closing?
Closing costs vary by lender, loan program, mortgage type and the amount you borrow. Your location, home equity, loan term, property and occupancy type also influence closing costs.
Closing costs usually range from 2% and 6% of the loan amount. To illustrate, the closing costs on a $389,000 mortgage would be between $7,780 and $23,340. The table below includes estimates of expenses categorized as closing costs:
| Closing cost | Amount |
|---|---|
Application fee | $75–$500 |
Credit report fee | $25–$35 |
Origination or underwriting fee | Up to 1.5% of the total loan amount |
Document preparation fee | $50–$600 |
Home appraisal fee | $300–$1,000 |
Survey fee | $140–$400 |
Title search and insurance fee | $300–$900 |
Recording fee | $25–$250 (varies by county) |
Attorney fee | $500–$1,000 |
How to lower your refinance closing costs
The benefits associated with refinancing should outweigh the costs to make it a worthwhile strategy. But if you’re worried about closing costs on the new loan, you can potentially lower out-of-pocket costs with various strategies.
Opting for a no-closing-cost refinance
Some lenders let you roll the closing costs into the principal balance rather than paying the fees upfront, so you can keep more money in your pocket. However, your borrowing costs could be higher because lenders generally charge a higher rate in exchange for this perk.
Shopping around for the best deal
Explore mortgage refinance options from several lenders. Create a shortlist, get prequalified with your top three picks (if applicable) and compare loan quotes to identify the option with the best terms and lowest fees.
Inquiring in-house about refinancing
Your current lender may be willing to approve you for a mortgage refinance. It’s also not uncommon to receive perks, like fee waivers or reduced closing costs, in exchange for the opportunity to do business with you.
Negotiating closing costs
The loan quote you receive isn’t necessarily final. Some lenders are open to negotiating specific fees to earn your business. Use other loan estimates as leverage to get the best deal.
Increasing your credit score
Lenders assess your creditworthiness, among other factors, to decide your interest rate. The lowest rates typically go to borrowers with solid credit scores. You may not get a break in closing costs with stellar credit, but your borrowing costs over the loan term could be substantially lower.
Purchasing mortgage points
Each point equals a 0.25 percentage point reduction in your interest rate and costs approximately 1% of the total loan amount. Although purchasing points increases your closing costs, it’s another way to substantially curb interest costs over time.
When is it worth it to refinance?
Several circumstances could warrant a mortgage refinance:
You qualify for a better rate
If rates have dropped since you took out your current mortgage, you could refinance to get a more competitive rate. The same applies if your credit score has improved and it qualifies you for a better rate. Either way, a more attractive rate could mean more affordable monthly mortgage payments and lower borrowing costs, depending on your loan term.
You want to pay your mortgage off sooner
You can refinance into a mortgage with a shorter term to pay your balance off sooner. Doing so also helps curb interest costs over the loan term because the lender will have less time to collect from you. Remember that a shorter repayment period could mean much higher monthly mortgage payments.
You want to convert your home equity into cash
A cash-out refinance lets you tap into your home equity and use the funds however you want. It involves taking out a new mortgage that’s larger than what you currently owe and receiving the difference in cash.
The amount you can withdraw in cash depends on your home equity. Most lenders cap cash-out refinances at 85% of your home equity — or the property value minus the outstanding mortgage balance.
You want to switch to a fixed-rate mortgage
Adjustable-rate mortgages (ARMs) have lower introductory rates, which makes them more appealing. But once the fixed-rate period ends, you get a variable rate that fluctuates with market conditions.
The monthly mortgage payments follow suit, which makes it more challenging to budget for housing costs. Luckily, you can refinance to switch to a fixed-rate mortgage and get predictable monthly mortgage payments.
You want to get rid of private mortgage insurance (PMI)
If you have a government-backed FHA or USDA mortgage, you’ll pay mortgage insurance for the life of the loan. There’s no private mortgage insurance (PMI) requirement for conventional loans, though, if you have 20% or more in home equity. So refinancing could be worth it to eliminate PMI if you’ve reached this home equity threshold.
The AP Buyline roundup
Refinancing your mortgage can be worth it. You may qualify for a lower interest rate that makes your monthly mortgage payments more affordable and reduces borrowing costs. You can also shorten the loan term to pay off your mortgage, switch your mortgage type or leverage your home equity to achieve financial goals.
Regardless of your reason for refinancing, understand the closing costs (and run the numbers) to ensure the long-term benefits outweigh the costs.
Frequently asked questions (FAQs)
How much will it cost to refinance my mortgage?
Most homeowners pay between 2% and 6% of the loan amount when refinancing their mortgage. The amount depends on your location, lender, loan term and equity in your home (among other factors).
Is it worth it to refinance?
Refinancing is often worth it if you get a better interest rate, lower your monthly mortgage payments or eliminate PMI. A mortgage refinance may also be ideal if you want to tap into your home equity or change your loan type. However, be sure the benefits outweigh the costs before moving forward.
Does refinancing hurt your credit?
Applying for a mortgage refinance could temporarily ding your credit score. You could also see another dip once the new loan is added to your credit profile because it will lower the average age of your credit accounts.
This content is created by AP Buyline in accordance with AP’s editorial guidelines and supervised and edited by AP staff. Our evaluations and opinions are not influenced by our advertising relationships, but we may earn commissions from our partners’ links in this content. Learn more about AP Buyline here.