How Much Does Refinancing a Mortgage Cost?

If you bought your home when interest rates were high (or when you didn’t qualify for a better rate), refinancing your mortgage might save you money. With a refinance, you could lock in lower monthly payments or otherwise change the terms of your loan to benefit you. 

However, mortgage refinances aren’t free. How much does refinancing a mortgage cost? And is that cost worth it? We’ll help you find the answer.

How much does refinancing a mortgage cost?

Most mortgage refinances cost between 2% and 6% of the new loan amount. For example, suppose that you have $200,000 left on your mortgage and are looking into refinancing it. You can expect to pay between $4,000 and $12,000 in closing costs.

These closing costs vary quite a bit because they don’t include just one single fee. When you refinance a mortgage, you’ll pay several smaller fees.

Common refinancing fees

Here’s a look at some of the fees that often come with refinancing a mortgage:

Application fee

You’ll have to pay an application fee just to have the lender review your request. This fee can cost up to $500, and it may or may not be refundable. However, if you apply through your current mortgage lender, the lender might waive the fee for you.

Origination fee

An origination fee (sometimes called an “underwriting fee”) is what the lender charges to prepare your new loan. Most lenders will charge $300 to $500.

Appraisal fee

Before a mortgage lender offers you a new loan, they need to know how much your home is worth. Typically, the lender will pay an independent real estate appraiser to value your home. Most appraisal fees are $300 to $500. However, if your property is very large or in some way unique, you might pay more.

Title search and insurance

Lenders also need to make sure there are no issues with your home’s title. A title search looks for tax liens, ownership disputes, or anything else that could interfere with a new mortgage. The lender will also take out title insurance to protect themselves from any mistakes made during the title search, passing this cost on to you.

Title searches and title insurance can be expensive, depending on how complicated the property records are. Expect to pay between $300 and $2,000.

Credit report fee

The lender may charge you for a comprehensive credit report. This can cost up to around $100.

Recording fee

Your local government may charge a recording fee to document the new mortgage. Recording fees vary widely by jurisdiction, but they’re usually between $20 and $300.

How interest rates affect refinancing costs

The list of refinancing fees might look daunting. But while these fees can add up to a big number, the new interest rate is just as important.

Lower rates can save money even with fees

If you are able to refinance your mortgage at a much lower rate, you’ll pay less over time. Your monthly payments may be smaller, too. Paying a few thousand dollars in fees might sound like a lot now, but if it saves you tens of thousands down the line, it’s worth it.

When refinancing isn’t worth it

Refinancing your mortgage doesn’t guarantee that you’ll pay less. If current mortgage rates are higher than the rate you have now, you’ll lose money through a refinance. 

To decide whether it’s worth it to refinance your mortgage, add up your total potential monthly savings over how long you expect to stay in the home. If the closing costs are greater than your savings, consider waiting to refinance until rates go down.

Ways to reduce refinancing costs

If you think the cost of refinancing your mortgage is a little steep, you’re not alone. Fortunately, you may be able to lower those costs. Here are a few strategies.

Shop multiple lenders

When you’re shopping around for a mortgage, it’s a good idea to get pre-approvals from multiple lenders. The same is true when you’re trying to refinance. Always compare rates before you commit!

Negotiate or waive certain fees

When you’re refinancing a mortgage, some fees are negotiable. Fees that the lender charges you directly (like origination, application, and underwriting fees) are more likely to be negotiable.

Consider rolling costs into the loan

Paying several thousand dollars to refinance might not be practical for you, but some lenders will roll your costs into the loan. You’ll still have to pay closing costs, but you can avoid having to make a large lump-sum payment.

How to prepare your credit for refinancing

How much does refinancing a mortgage cost? It depends on the lender and the size of the loan, among other things. Additionally, whether you can save money by refinancing depends on the new interest rate. And the higher your credit score, the lower that interest rate is likely to be.

Before you start shopping around for refinancing deals, get a copy of your credit report and check your score. Most lenders look for a score of at least 620, but you’ll qualify for better rates if your score is higher.

If you’re using more than 30% of your available credit, paying down debt may boost your score significantly. You should also avoid applying for new credit right before you refinance.

Finally, check your credit report for errors or inaccuracies. If you see any, dispute them before you refinance!

Thinking about refinancing your mortgage?

Under the right circumstances, refinancing your mortgage can be a smart financial move. However, before you start the process, you should make sure your credit is in the right place.

If you want to build or improve your credit, Kikoff is here to help. With our credit-builder app, we strive to make working on your credit easy and accessible. Through credit lines, dispute tools, debt negotiation, and other services, you can take your financial future into your own hands.

It’s free to get started, and we don’t run a hard credit inquiry. Sign up in minutes today!