One common reason to refinance a mortgage is to lock in a lower interest rate. Depending on how you run the numbers, the savings can be big: either as a lower monthly payment, a quicker mortgage payoff or both.
Still, there’s a price to pay. A mortgage refinance comes with closing costs, just like the ones you paid when you bought your house. Let’s break down what to expect when budgeting for refinance closing costs.
» MORE: Is now a good time to refinance?
Refinance closing costs: How much will I pay?
In general, refinance closing costs run about 2% to 6% of the new loan amount. Here’s what that looks like for different mortgage sizes:
Loan amount | Closing costs: Low end (2%) | Closing costs: Midpoint (4%) | Closing costs: High end (6%) |
|---|---|---|---|
$200,000 | $4,000 | $8,000 | $12,000 |
$300,000 | $6,000 | $12,000 | $18,000 |
$400,000 | $8,000 | $16,000 | $24,000 |
$500,000 | $10,000 | $20,000 | $30,000 |
$600,000 | $12,000 | $24,000 | $36,000 |
$700,000 | $14,000 | $28,000 | $42,000 |
Not everyone pays the same thing for a mortgage refinance. The cost of your refinance is unique to you and depends on:
- 💰 The loan amount: Some costs are calculated as a percentage, so larger loans = higher fees.
- 🤔 The type of loan: A rate-and-term refinance typically has lower interest rates than a cash-out refinance. Lenders view cash-out refis as riskier, since you’re typically increasing the loan balance.
- 📍 Where you live: Pre-paid taxes differ based on the location of your property and its value.
- 📈 Your credit score: The best interest rates go to borrowers with credit scores of 740 or higher. With a lower score, expect to pay higher rates and fees.
- 🤝 Which lender you choose: You’ll save money if you shop around. Compare refinance mortgage rates from at least three lenders to see who offers the best deal.
Did you know...
Technically, a refinance pays off your existing mortgage and replaces it with a new one. Some lenders charge a prepayment penalty if you pay off your mortgage early. If your mortgage is only a few years old, read the fine print to avoid any surprise fees.What are refinance closing costs?
Refinance closing costs are the fees you pay to finalize a new mortgage. They cover behind-the-scenes tasks — such as processing and filing paperwork — that are required to complete the loan. These costs are typically paid by check or wire transfer at the time of closing.
Technically, closing costs aren’t one big expense — they’re more like a bundle of little charges. Common closing costs for a mortgage refinance can include:
- Origination fee
- Appraisal costs
- Taxes and insurance (escrow deposit)
- Title-related services
- Credit check fees
- Attorney charges
- Survey expenses
- Government filing fees
- Discount points (an optional up-front fee to pay a lower interest rate)
Your lender will give you a Loan Estimate detailing what costs to expect. Your Loan Estimate will also tell you which fees you can shop for to get the best deal.
You can compare providers for some fees, like title services — usually the biggest fee — and home appraisals. Other fees are set at a fixed amount, such as property taxes.
Can I refinance my mortgage with no closing costs?
It is possible to refinance a mortgage without paying closing costs, but that doesn’t mean the loan is free. You just don’t pay the fees all at once. A no-closing-cost refinance can work in a couple different ways:
- Higher interest rate: Lenders charge a higher interest rate and use that extra money to cover the loan fees. With a higher interest rate, you’ll pay more money in interest over time.
- Roll fees into your total loan amount: A bigger loan = higher monthly payments. The added fees slow how fast you build equity and pay down your principal.
That said: Since the costs are spaced out over time, a no-closing-cost refinance might make sense if you don’t plan on staying in your house for very long.
Is refinancing worth the cost?
Financially speaking, refinancing is worth it when you stay in the home long enough for savings to outweigh costs. To estimate how long that will take, use this formula:
- Total closing costs ÷ monthly savings = break-even point
Example: $5,000 in closing costs ÷ $250 monthly savings = 20 months to break even.
If you plan to move before reaching your break-even point, you may not save enough to make up for the cost of refinancing.
Not every refinance is about saving money. There may be other reasons to refinance, such as getting a divorce and wanting to keep the house in your name only. In that case, you may need to refinance into a new loan to remove your ex-spouse’s name from the mortgage.
NerdWallet writer Isabella Angelos contributed to this story.
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