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How Much Does It Cost to Refinance a Mortgage?

Written by Marc Guberti

Marc Guberti is a Certified Personal Finance Counselor who has been a finance freelance writer
for five years. He has covered personal finance, investing, banking, credit cards, business
financing, and other topics.
Marc’s work has appeared in US News & World Report, USA Today, Investor Place, and other
publications. He graduated from Fordham University with a finance degree and resides in
Scarsdale, New York.
When he’s not writing, Marc enjoys spending time with the family and watching movies with
them (mostly from the 1930s and 40s). Marc is an avid runner who aims to run over 100
marathons in his lifetime.

Updated March 12, 2024​

5 min. read​

cost to refinance mortgage

Refinancing your mortgage could be a wise financial decision if you can get a lower interest rate, make more affordable monthly payments, or reduce your term to pay off the balance faster. Still, it comes with costs that should be considered to determine if the benefits make refinancing worthwhile. However, before you conduct a cost-benefit analysis, you should understand how mortgage refinancing works.

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What is Mortgage Refinancing, and How Does it Work?

A mortgage refinance enables you to change your current loan to a new one. Most borrowers take this route to secure a more competitive interest rate, lower monthly payments, borrow against the equity they’ve built up in the home or convert from an adjustable-rate mortgage to a fixed-rate mortgage.

How Much Does It Cost to Refinance Your Mortgage?

You’ll generally spend between two and six percent of your loan amount to refinance your mortgage. Here’s a breakdown of costs you can expect to incur:

  • Application fee: $75 to $500
  • Attorney’s fee: up to $1,000
  • Credit report fee: $25 to $50
  • Flood certification fee: $15 to $30
  • Home appraisal fee: $300 to $500
  • Home inspection fee: $300 to $500
  • Loan origination and underwriting fee: up to 1.5% of the loan amount
  • Title search and insurance fee: $400 to $900
  • Recording fee: varies by location
  • Survey fee: $150 to $500

Calculating the Cost to Refinance Your Mortgage

Knowing some of the fees can make it easier to calculate the cost of refinancing a mortgage. However, there are a few key details to focus on when coming up with an estimate.

Factors to Consider

The mortgage balance is the most important factor when calculating the cost of a refinance. Closing costs and some other expenses are equal to a percentage of your remaining balance. Then, you will have to shop around and find affordable choices for other fees.

How to Calculate and Estimate Refinancing Costs

Many banks have online calculators that let you guess how much you will owe in refinancing costs. You can take a fixed percentage of your mortgage’s balance and use that as an estimate. Most refinances end up costing 2% to 6% of your loan’s value. For instance, if you have a $100,000 mortgage, your refinancing costs will likely range from $2,000 to $6,000.

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Are There Any Hidden Fees You Should Be Aware Of

You can find fees in the loan’s term, but there are a few less well-known refinancing fees. You will have to pay private mortgage insurance if you have less than 20% equity in your home. This scenario can happen if you request a cash-out refinance.

Prepayment penalties are also subtle. You may get charged extra money for paying off some of your mortgage early. Many lenders have this fee to minimize how much they lose if you pay off your loan early (i.e., you avoid interest payments in the process). This penalty may be a part of your old mortgage, which will increase your total refinancing costs. You will also be required to get a new appraisal for your property if you want to refinance it. That will cost a few hundred dollars.

Some Factors that Can Affect the Cost

The Size of Your Loan

The larger your home loan, the more you can expect to pay in closing costs.

Your Lender

Each lender has its own fee schedule for mortgage refinances, and some charge more than others.

Your Location

The location of your property is a significant factor in how much you’ll pay for a home appraisal, property taxes and other applicable closing costs that come with refinancing your mortgage.

Your Credit Score

In most cases, the best interest rates go to borrowers with good or excellent credit scores. However, if your credit score isn’t up to par when you refinance, chances are you won’t get a lower rate unless market conditions have changed.

Mortgage Term

A shorter loan term will typically help you obtain a lower interest rate, which could save you thousands of dollars over time.

Mortgage Type

A traditional rate-and-term refinance will generally cost you less than a cash-out refinance as it poses less risk to the lender.

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Fees and Other Charges

As mentioned, there are several fees you can expect when refinancing your mortgage. However, some lenders may waive a sizable portion of these costs to entice you to seal the deal.

Why Should You Refinance Your Mortgage?

Lower Your Rate and Payment

Your credit score may have improved after taking your current mortgage; you could qualify for a lower interest rate. You could get more affordable monthly payments and possibly pay less interest over the loan term.

Request for an Adjustable Rate Mortgage

Adjustable-rate mortgages are generally more affordable in the first few years. But when the fixed period changes, you can expect your monthly payment to follow suit annually as market conditions change. Or you can refinance into a fixed-rate mortgage to get a predictable monthly payment that doesn’t change over time.

Shorten Your Term-loan

If you don’t mind higher monthly mortgage payments, you could shorten your loan term to pay your mortgage off faster. As a result, you may get a lower interest rate and save several hundred or thousands of dollars on interest over the loan term.

Take Cash Out to Consolidate Your Debt

You can also get cash out of your home through a cash-out refinance to consolidate high-interest debts and free up room in your budget to meet other important financial goals.

Take Cash out for Home Improvements

Home upgrades and repairs can be pricey. But if you use a cash-out refinance, you can cover the costs without resorting to a high-interest credit card or personal loan with steep monthly payments.

Take Cash out to Purchase Investment Property

You can use the loan proceeds from a cash-out refinance to purchase or put a down payment on an investment property and make your money work harder for you.

Remove Private Mortgage Insurance

If your loan-to-value ratio is below 80 percent after refinancing, you may be able to remove private mortgage insurance.

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Strategies to Trim Your Refinance Costs

A refinance will cost a lot, but you can use these strategies to keep your costs low.

Shop Around for the Best Rates

Don’t commit to the first mortgage lender you find. Compare loan offers from different lenders and see which ones are the most competitive. You don’t have to work with the same lender you have always used.

Negotiate Fees with Your Lender

You can negotiate with your lender to see if they will cover any of your fees. You can highlight a good credit score, a low debt-to-income ratio, and the fact that you can work with another lender instead.

Consider No-Closing Cost Refinance

A no-closing cost refinance allows you to refinance your loan without paying upfront closing costs. However, you can end up with a higher interest rate to compensate for the lack of closing costs. Some lenders will also let you roll the closing costs into the loan instead of having you pay the money upfront.

Conclusion: Weighing the Pros and Cons of Refinancing Your Mortgage

Refinancing your mortgage can help you save money and reduce your monthly payments. These financial products can offer more flexibility, but it is also essential to consider how much a refinance will cost. Furthermore, a refinance can become troublesome if it enables bad money habits. It’s important to weigh the pros and cons before refinancing your mortgage and replacing your current rate and terms.

Mutual of Omaha Mortgage can help you understand the expenses involved and guide you through making an informed decision that aligns with your financial goals. Don’t let uncertainty about costs hold you back from exploring the benefits of refinancing. By consulting with their experienced team, you can make a well-informed decision that sets you on the path toward achieving your financial objectives.

Contact Mutual of Omaha Mortgage today to discuss your options, even if you have a low credit score, and gain clarity on how much it will cost to refinance your mortgage. Complete this form, and a loan officer will be in touch to provide expert advice tailored to your unique situation. Take the first step towards a brighter financial future today.

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FAQs About Mortgage Refinancing Costs

How do you determine if refinancing will save you money?

You can save money on a refinance if you get a lower interest rate. Comparing the lower rate with the total refinancing costs will help you determine if you will save money.

Can the cost of refinancing a mortgage be included in the mortgage itself?

Yes. You can put all of the refinancing costs into the mortgage. That way, you can pay them over time instead of as a lump sum.

How does refinancing a mortgage affect my credit score, and will it lead to additional costs?

Refinancing a mortgage will temporarily reduce your credit score since lenders will run hard credit checks. However, you will not have additional costs related to a lower credit score. You only have to pay refinancing costs.

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