Expect to pay 2% to 5% or even 6% of the new mortgage amount in closing costs when you refinance your mortgage.
If you have sufficient equity in your home and you’re tempted by a rate-and-term refinance or a cash-out refi, here’s what you need to know about the costs.
Key Points
• Refinancing a mortgage can cost 2% to 5% or even 6% of the new mortgage amount in closing costs.
• Typical fixed refinance closing costs include loan application fees, credit report fees, home appraisal fees, recording fees, and attorney fees.
• Common percentage-based closing costs include loan origination fees, title search and insurance, mortgage points, and mortgage insurance.
• Refinancing may be beneficial if interest rates fall below your current mortgage rate, allowing for significant savings.
• To lower refinance costs, comparison shopping and negotiating with lenders are recommended, as well as maintaining a good credit score.
• A no-closing-cost refinance allows borrowers to roll closing costs into the mortgage, often at the cost of a slightly higher interest rate on the new loan.
What Is the Average Cost to Refinance a Mortgage?
How much does it cost to refinance a mortgage? Let’s put it this way: Refinancing isn’t free. That’s because you’re taking out a new home loan and paying off your current one, and doing so brings on a host of costs, though not as many as purchase loans incur.
The main difference between the average cost to refinance vs. closing costs for home purchases is that owner’s title insurance and several inspection fees common for purchases are not necessarily required for refinances or may be cheaper. But there is evidence that fees have been creeping up in recent years. From 2021 to 2023, median total loan costs for home mortgages increased by over 36%, according to the government’s Consumer Financial Protection Bureau.
Common Mortgage Refinance Fees
Some fees to refinance are flat fees that vary by lender. Other fees are based on a percentage of the loan amount.
Then there are recurring closing costs like homeowners insurance and property taxes. Six months of property taxes are often due at closing.
Here are some common fixed closing costs, though in some cases, a borrower may not need an appraisal.
| Typical Fixed Refinance Closing Costs | |
|---|---|
| Fee | Average cost |
| Loan application | up to $500 |
| Credit report | $25 to $75 |
| Home appraisal | $600 to $2,000 |
| Recording fee | $25 to $250 |
| Attorney fees | $500 to $1,000 or more |
And here are common percentage-based closing costs. Keep in mind that not all borrowers will need mortgage insurance (PMI or MIP: private mortgage insurance for conventional loans, and mortgage insurance premium for FHA loans). PMI is usually needed for a conventional loan exceeding an 80% loan-to-value ratio.
An FHA loan can be refinanced to another FHA loan or to a conventional loan if the borrower meets credit score and debt-to-income requirements for a nongovernment loan. USDA and VA loans can also be refinanced.
| Typical Percentage-Based Refinance Closing Costs | |
|---|---|
| Refi cost | Average amount |
| Loan origination fee | 0.5%-1% of the purchase price |
| Title search and insurance | 0.5%-1% of the purchase price |
| Mortgage points | 1% of the mortgage amount per point |
| Mortgage insurance | Varies by type of loan |
Hidden Costs to Watch For
Being aware of the range of potential closing costs and fees for a refinance is important as you’re evaluating whether a refinance would make financial sense for you. But there are some potential fees that might blindside you. Here are a few to look out for.
• Prepayment penalties. If your original mortgage penalizes you for an early payoff, your refinance might trigger those fees. How these penalties work varies by lender, so it’s worth checking with yours to make sure you know what, if any, fees you might be facing if you refinance.
• VA funding fee. If you’re refinancing using a VA loan, you’ll need to pay an upfront funding fee. The fee is a percentage of the amount you’re borrowing and may be higher for refinances, depending on the down payment. Current rates range from 1.25% to 3.3% of the loan amount.
• USDA guarantee fee. If you’re refinancing to a USDA loan, expect to pay a new guarantee fee, currently 1% of your loan amount, as well as a recurring annual fee of 0.35% of the loan amount.
Are You Eligible to Refinance?
Most mortgage lenders want a homeowner to have at least 20% equity in the house in order to refinance, although those numbers are not universal.
What is home equity? Here’s an example. If your home is worth $450,000 and the current mortgage balance is $250,000, you have $200,000 in equity. The loan-to-value ratio is 56% ($250,000 / $450,000). This scenario fits the parameters of many lenders for a refinance to take place.
Credit Score and Debt-to-Income Ratio Requirements
You’ll typically need a minimum FICO® credit score of 620 to refinance a conventional loan and 580 to refinance an FHA loan. A score of 740 or above often ushers in the best rates.
Lenders will also look at your debt-to-income (DTI) ratio, which compares your monthly debt to your monthly income. What they’ll accept depends on the lender, but for a refinance, they may prefer as low as 35% or less, though some may be willing to accept higher if your other credentials are good.
Besides credit score and DTI ratios, lenders normally review recent credit applications, on-time payments, and credit utilization.
Recommended: 7 Signs It’s Time for a Mortgage Refinance
Benefits of Refinancing a Mortgage
The most common type of refi is a rate-and-term refinance, when you take out a new loan with a new interest rate or loan term (or both). Some people will choose a mortgage term of less than 30 years when they refi, if they can manage the new monthly payment.
Then there’s cash-out refinancing, which provides a lump sum to the homeowner.
In general, refinancing may make sense if interest rates fall below your current mortgage rate. Here are some times when a mortgage refinance could be beneficial.
If You Can Break Even Within a Suitable Time Frame
Calculate how long it would take to recoup the closing costs. Find the break-even point by dividing the closing costs by the monthly savings from your new payment.
Let’s say refinancing causes your payment to decrease by $100 a month. If closing costs will be $2,500, it would take 25 months to recoup the costs and start to see savings.
If you plan to sell the house in two years, refinancing may not be the right strategy. If you intend to stay long term, it may be an idea to explore.
If You Can Reduce Your Rate Even a Little
You might read or hear that refinancing is worth it if you can reduce your mortgage rate by one or two percentage points. But for a big mortgage, a change of just a quarter of a percentage point, or half of one, could result in significant savings, especially if you can minimize lender fees.
Again, consider the break-even point and how long you plan to keep the home.
You’d Like to Tap Home Equity
With a cash-out refinance, a percentage of your equity can be issued in a lump sum for any purpose. You will need to have at least 20% equity remaining after the transaction.
Be aware that the higher loan amount of a cash-out refinance usually results in higher closing costs.
(If your main goal is to access cash and not to change your rate or term, a home equity loan or home equity line of credit may be less expensive than paying the closing costs on a cash-out refinance.)
An ARM’s Teaser Rate Is Appealing
Refinancing a fixed-rate mortgage to an adjustable-rate mortgage could make sense for a homeowner who plans to move before the ARM’s initial rate adjustment.
A 5/1 ARM, for example, will typically come with a rate for five years that is lower than that of most fixed-rate mortgages.
In other rate environments, it could make sense to refinance an ARM to a fixed-rate mortgage.
You Want to Reduce Your Repayment Term
Some people may decide to take advantage of a lower rate and shorten their mortgage term, say from 30 years to 15. Monthly payments may well go up, but a lower rate and a shorter term mean paying much less over the life of a loan.
The amortization chart of this mortgage calculator shows how much interest may be saved.
You’d Like to Get Rid of FHA Mortgage Insurance
FHA loans come with an annual mortgage insurance premium (MIP) that ranges from 0.15% to 0.75% of the loan amount, divided into monthly payments. Unless you put down more than 10%, you must pay those premiums for the life of the loan. The only way to get rid of the MIP is to get a new mortgage that isn’t backed by the FHA.
You Want to Switch Loan Types
If you have a conventional mortgage but you’re eligible for a government-backed mortgage that may have more advantageous terms, a refinance to switch loan types could be worth exploring.
If you qualify for a VA loan, for example, it may be possible to refinance to a VA loan with a cash-out refinance. You can also potentially refinance from a conventional mortgage to an FHA cash-out refinance or FHA 203(k) refinance (used for home improvements), though you will have to pay the mortgage insurance premium.
Tips to Lower the Cost of a Mortgage Refinance
As you’re contemplating how much it costs to refinance a 30-year mortgage, bear in mind that the most important step you can take is to shop around.
Comparison Shop and Try to Negotiate
You need not apply for a refinance with just your current lender — and doing so would be a missed opportunity, the Consumer Financial Protection Bureau notes. Then again, your current lender may offer loyalty incentives.
Apply with as many lenders as you wish; you’ll receive a loan estimate from each. Compare the costs, including those of the lender’s preferred vendors.
Ask potential lenders which fees can be discounted or waived. Remember, each lender wants your business.
Typical non-negotiable closing costs found under Section B of each loan estimate include credit reports and appraisals.
Keep Your Credit Shipshape
Having at least a “good” credit score can help you get a more attractive rate, and if your credit score has improved since the initial mortgage was taken out, that could be a reason to refinance all by itself.
A good FICO score on the credit rating scale of 300 to 850 falls in the range of 670 to 739. VantageScore®, a competitor developed by Experian, Equifax, and TransUnion, considers a score between 661 and 780 good.
If your credit profile could use some polishing, consider ways to build credit over time.
Use the Same Title Insurance Company
Save money on the lender’s title insurance policy by asking for a reissue rate from the title insurance company that was used for the original loan.
Consider a Streamline Refi for Government Loans
If you have an FHA, USDA, or VA loan, you may want to see if you’re eligible for an FHA Streamline, USDA Streamlined-Assist, or VA Interest Rate Reduction Refinance Loan. The programs may charge a lower mortgage insurance fee than regular government refinance programs and usually do not require an appraisal.
Think About a No-Closing-Cost Refi
A no-closing-cost refinance allows borrowers to roll the closing costs into the mortgage or accept a slightly higher interest rate on the new loan.
Rolling the closing costs into the refinance loan will increase the principal and total interest paid. But if you’re going to keep the loan for more than a few years, this move could be worth it.
Accepting a slightly higher rate could work for borrowers who can skip the upfront payment and who plan to keep their new loan for only a few years.
Lock In a Favorable Interest Rate
When you’ve gotten an offer for an interest rate you like, you may want to get a rate lock, which will ensure the offer won’t change for a specified period of time – usually 30 to 60 days – as long as nothing else changes. Ideally, this will let you be sure you can close the deal with this rate. Some lenders may lock your rate when they issue the loan estimate, but others may not automatically lock your rate and may charge a fee. Check with your potential lender to understand your options.
Recommended: Guide to Buying, Selling, and Updating Your Home
The Takeaway
How much does it cost to refinance a typical 30-year mortgage? Refinancing your mortgage could cost anywhere from 2% to 5% or more of the loan amount but might make financial sense if you are able to capture a lower interest rate, shorten your payment term (and thus lower the amount of interest you pay), or escape paying a mortgage insurance premium on an FHA loan. To contain costs, always compare offers from multiple lenders and don’t forget to include both interest and closing costs (and fees) in your calculations.
SoFi can help you save money when you refinance your mortgage. Plus, we make sure the process is as stress-free and transparent as possible. SoFi offers competitive fixed rates on a traditional mortgage refinance or cash-out refinance.
FAQ
Is refinancing your mortgage free?
No. A whole new loan must be approved and processed, and fees will apply.
Is refinancing a mortgage worth the closing costs?
It might be. You’ll want to calculate your break-even point: Divide your closing costs by whatever your monthly savings will be to find the number of months it will take you to break even. Beyond that point, the refinancing benefits kick in.
Is it worth refinancing to save $100 a month?
Refinancing to save $100 a month could be worth it if you plan to keep your home long enough to cover the closing costs. Divide your closing costs by 100 to calculate how many months it will take you to break even.
Will refinancing cost me more in the long run?
If you get a new 30-year mortgage several years into your original 30-year loan, you are, in essence, lengthening the term of your loan, and that can cost you. It may make more sense to shorten the term to 20 or 15 years.
Is it cheaper to refinance with the same bank?
Your lender might offer a slightly lower rate, but it’s still a good idea to see what competitors are offering by comparing loan estimates.
Can you negotiate closing costs when refinancing?
Yes. Many lender fees and third-party vendor fees are negotiable. On each loan estimate, Section A lists the lender charges. Try to negotiate the lowest total lender charge, keeping the rate in mind. And third-party fees in Section C are negotiable.
*SoFi requires Private Mortgage Insurance (PMI) for conforming home loans with a loan-to-value (LTV) ratio greater than 80%. As little as 3% down payments are for qualifying first-time homebuyers only. 5% minimum applies to other borrowers. Other loan types may require different fees or insurance (e.g., VA funding fee, FHA Mortgage Insurance Premiums, etc.). Loan requirements may vary depending on your down payment amount, and minimum down payment varies by loan type.
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All loan terms, fees, and rates may vary based upon your individual financial and personal circumstances and state.You should consider and discuss with your loan officer whether a Cash Out Refinance, Home Equity Loan or a Home Equity Line of Credit is appropriate. Please note that the SoFi member discount does not apply to Home Equity Loans or Lines of Credit not originated by SoFi Bank. Terms and conditions will apply. Before you apply, please note that not all products are offered in all states, and all loans are subject to eligibility restrictions and limitations, including requirements related to loan applicant’s credit, income, property, and a minimum loan amount. Lowest rates are reserved for the most creditworthy borrowers. Products, rates, benefits, terms, and conditions are subject to change without notice. Learn more at SoFi.com/eligibility-criteria. Information current as of 06/27/24.In the event SoFi serves as broker to Spring EQ for your loan, SoFi will be paid a fee.
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†Veterans, Service members, and members of the National Guard or Reserve may be eligible for a loan guaranteed by the U.S. Department of Veterans Affairs. VA loans are subject to unique terms and conditions established by VA and SoFi. Ask your SoFi loan officer for details about eligibility, documentation, and other requirements. VA loans typically require a one-time funding fee except as may be exempted by VA guidelines. The fee may be financed or paid at closing. The amount of the fee depends on the type of loan, the total amount of the loan, and, depending on loan type, prior use of VA eligibility and down payment amount. The VA funding fee is typically non-refundable. SoFi is not affiliated with any government agency.
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