How Much Does Mortgage Refinancing Cost?
A mortgage indeed refinances can significantly reduce your rates and help you save money in the long run. You can also refinance to change your loan term and type or tap your home equity.
However, refinancing a home loan comes with closing costs too, much like your current mortgage. How much is it?
Common refinancing cost breakdown
When you receive your Closing Disclosure, it will state the closing costs in addition to other details about your refinancing.
Some common costs you will see in a refinance include:
1. Application fee: $75 to $500
This is something that most lenders will charge, which you will still need to pay even if your application ends up rejected.
2. Appraisal fee: $300 to $400
Most lenders in a refinance would require a home appraisal. The exact number for this varies depending on factors such as your home size, value, condition, and how detailed the appraisal has to be.
3. Underwriting fee: Up to 1.5% of loan principal
Also known as the origination fee, the underwriting fee is how much a lender charges to process your application. The percentage can range between 0.5% and up to 1.5%, which is negotiable but may affect if the mortgage rates.
4. Attorney fee: $500-$1,000
When you’re refinancing in certain states, it is required by law for an attorney to review and file the paperwork in the process. The fees also vary depending on where you are.
5. Title search: $400 to $900
Some lenders may require an additional title search when refinancing, which is the process of reviewing public records to ensure that you are indeed the legal owner of your home.
Factors affecting your refinancing costs
What exactly affects how much refinancing your mortgage will cost?
- Type and size of the loan. The largest determinant for your refinancing costs would be how large your home is.
- It also matters where it is, because it will be more expensive to refinance a mortgage in certain states than in others.
- Discount points. Paying a larger fee upfront gives you lower refinance rates. Alternatively, you can pay a smaller closing cost by agreeing to a higher rate.
- Whether or not it’s a cash-out refinance. A cash-out refinance will cost more in terms of interest rates as lenders consider cash-out a higher risk refinance.
- Closing costs and fees. We’ve broken this down above, but closing costs may differ from case to case, and it can be quite low or extremely pricey depending on your circumstance.
Reasons to refinance your home mortgage
So why would you want to refinance a home loan and replace a mortgage you already have with a different one? Here are some popular reasons for refinancing…
1. Lower interest rate
When done right, a mortgage refinance can help you save thousands of dollars in the long run, mainly by giving you a smaller interest rate. Even better if you’re keeping the same term, which means the interest rate environment is lower today than when you started your initial mortgage.
To illustrate, refinancing a 30-year loan into another 30-year loan with a decreased rate still means you get to benefit from a smaller monthly payment. Although, note that this won’t also bring down your taxes.
2. Change loan term
Another reason you may want to refinance your home loan is to change the loan term, either to a shorter or longer one. Shortening your term can significantly reduce the amount of interest you pay, although note that this would mean a higher monthly payment.
Likewise, if you’re finding it difficult to keep up with the current monthly payment, you can lengthen your term. This will lower your monthly payments, but it also means you’ll be paying more interest.
3. Cash-out your equity
With a cash-out refinance, you can tap your home equity and take out some cash, which you can use for different purposes. Equity itself refers to the percentage of the property which you own. You will only possess 100% once the entire mortgage is paid off.
Let’s say you want to pay off other higher-interest debt, fund your college, or start a home improvement project. In that case, refinancing can be a great option to give you some cash!
4. Convert loan type
A refinance is a great way for you to change your loan type, whether that is from an adjustable-rate mortgage to a fixed-rate, or from an FHA to a conventional loan. Remember that refinancing a mortgage means replacing your existing home loan with a new one. This includes a completely new set of agreements too.
How to lower refinance cost
There are many things you can do to try and keep your refinance costs low. Here are some of our go-to tips:
Have a higher credit score
You can get a better rate if you have a high credit score, so it can be a good idea to focus on improving it before applying for a refinance. This can be through making timely payments, increasing your credit limit, and keeping a low credit utilization.
Try to avoid using mortgage points
Buying mortgage points is not always worth it, especially because it gives you lower rates by increasing the amount that you have to pay upfront.
Negotiate
Don’t be afraid to negotiate with your lender because certain fees are negotiable, especially things like application and origination fees. Ask for a better deal but be respectful and considerate about it.
Use the same title insurance company
While title search is almost always unavoidable, you can prevent paying for it twice by sticking with the same title insurer as when you first got your mortgage. You will only have to pay to reissue the policy, which can save you a few hundred dollars.
Get a no-closing-cost to refinance
If you don’t have much cash on hand, it may be a good idea to apply for a no-closing-cost refinance. However, note that paying little to no amount of closing cost will raise your interest rate. You may end up paying more over the length of your mortgage.
Ask to forego the appraisal
If your home has just been appraised and home values haven’t changed much, your lender may be willing to waive the appraisal. This means you can avoid paying a hefty amount in appraisal fee!
If you’re considering refinancing your mortgage, it’s important to do your research and find out as much as you can about it. We hope this post can help you understand how much it might cost you to refinance your home loan.