Refinancing your current mortgage can drop your monthly payment and interest rate. But with every new loan come closing costs. Is it always worth it? Let’s take a look at the numbers in the various refinance scenarios and see. Lets find out if the cost to refinance a home mortgage will continue to rise in 2024.
What Are the Average Mortgage Refinance Closing Costs?
As of last year, the average closing costs to refinance a mortgage was 1.5%. This figure varies depending on your type of loan and FICO score. If you have a $200,000 mortgage, the typical closing costs for a refinance will amount to 1.5% or $3000. If you want to refinance your loan into a 30 year note, this means you need to see a drop of about $90 per month in your payment to make it worth it.
On the up side, most lenders allow you to roll your closing costs into your new loan. So you need not pay cash up front.
When you refinance, you’ll encounter closing costs similar to those with your original mortgage loan. These encompass expenses such as appraisal fees, recording costs, origination fees, title insurance, and more. While the refinance closing costs can vary considerably, Freddie Mac estimates the average refinance to cost around $5,000.
Some mortgage lending companies may advertise “no closing cost” refinances, but these essentially incorporate your closing costs into your loan balance or into a higher interest rate. As a consequence, your mortgage balance increases, leading to higher long-term interest expenses.
Before proceeding with any paperwork, it’s essential to conduct thorough research to verify the benefits and actual monthly savings. The RefiGuide offers an online portal so you can shop for the best brokers and lenders that offer no closing cost refinance mortgages with your credentials.
Do You Have to Pay Closing Costs When Refinancing a Mortgage?
With a no-closing-cost refinance, you have two choices: accepting a higher interest rate or an elevated loan balance. Not all lenders provide both variations of no-closing-cost refinancing, so ensure your lender offers the option you prefer.
How Does a No Closing Cost Refinance Work?
A no closing cost refinance sounds great, right? Almost too good to be true?
Well in some ways, it is. The truth is, you will always end up paying somewhere to refinance a mortgage.
Whether you pay up front or as part of the loan, you will be paying something – closing costs, origination fees or a higher mortgage rate.
A no closing cost refinance loan usually has an interest rate that is a bit higher to make up for the closing costs the lender paid for you.
The rate could be .5% higher over the life of the loan, which will cost you tens of thousands of dollars more in interest.
That said, there are advantages to a no closing cost refinance that are worth considering:
- No further lender fees
- Your mortgage balance will not go higher
- You pay nothing up front
Some of the disadvantages of a no closing cost refinance:
- You will pay a higher interest rate
- The cost of the loan is considerably more expensive over the years
- Not every lender offers a no closing cost option
Do You Have to Pay Closing Costs Up Front in a Mortgage Refinance?
If you would rather not come out of pocket to pay for mortgage closing costs and lending fees, consider a no-closing-cost refinance mortgage. Despite its name, this home refinance isn’t entirely devoid of closing costs; you just won’t be required to pay them upfront. Instead, the lender may increase your interest rate or include the closing costs in the new loan.
What Are Closing Costs on a Refinance Today?
Closing costs encompass both lender fees and third-party fees incurred during the mortgage process. When refinancing, you are obligated to pay these costs, mirroring the process of your initial mortgage.
It’s crucial to recognize that closing costs are not a fixed amount; their magnitude is contingent on factors such as your geographical location, loan amount, chosen lender, specific loan program, and whether you are extracting home equity in the process.
Typical Closing Costs on a Mortgage Refinance
- Loan origination fee: .5%-1.5% of the loan amount
- Discount points (optional): 0%-1% of loan amount or more
- Application fee: $50-$295
- Credit check fee: $20 to $50
- Home appraisal fee: $450-$1,500
- Title search and title insurance: $295-$1,995+
- Survey fee: $120-$399
- Attorney fees: $400-$1,500
- Recording fees: $25-$250 (based on region)
- Processing and/or underwriting fee: $295-$750 each
- Prepaid taxes and homeowners insurance: varies
Frequently Asked Questions on Refi Closing Costs
Is it Better to Include Closing Costs When Refinancing a Mortgage or Pay Up-Front?
Incorporating closing costs into your mortgage refinance could offer a more manageable approach to budgeting your monthly expenses, particularly if funds are tight. However, it’s advisable to thoroughly assess all available options before making a decision. For instance, there are programs offering down payment and no closing cost alternatives for borrowers who are willing to accept a slightly elevated mortgage rate.
Which Is Better, a Lower Mortgage Rate or Lower Closing Costs on a Refinance?
Opting for the low closing cost option is advantageous when the loan amount is lower. On the other hand, if you’re purchasing or refinancing your long-term residence, prioritizing the lowest interest rate, even if it means paying points to reduce it, is recommended.
How to Get the Best Refinance Rates
If you want to pull the trigger on a refinance, it is important to look at refinance offers from several lenders. If you are offered a no closing cost loan, you should still shop around and see if you can find a better deal from another lender.
Types of Refinance Programs to Consider
- High LTV: The high LTV refinance program is still available to homeowners whose values dropped during the crash. It allows people who are underwater on their mortgage to do a refinance at a lower rate. But this program is not intended for people who are behind on their mortgage. In most cases, high LTV lenders will require borrowers to have good credit scores.
- Rate and term refinance: This is a traditional refinance that is available for conventional and FHA mortgages. You can refinance your mortgage into a new, lower rate in a 15 year, 30 year or ARM loan. This type of refinance can come with closing costs paid up front or rolled into the loan, depending on the lender.
- Streamline refinance: This type of refinance is available to the borrower who has a loan backed by the US government, such as FHA, VA or USDA. These refinances do not involve cash out and are much easier to get. Less paperwork is involved, and the lender may not even check your credit score or income.
- Home equity loans: This is not a refinance on your first mortgage. It is a second mortgage that some borrowers use to pull out their equity. Closing costs also will average 1-3%. Consider the differences of HELOCs and home equity loans.
Closing Cost Details on a Refinance
What comprises all those fees in closing costs anyway? Here’s the basic list:
- Home appraisal: Most lenders want a new home appraisal to determine what the loan to value ratio is. The typical cost of a home appraisal is $300 to $600, and must be paid up front.
- Application fee: Charged by the new lender to close the current loan and open a new one. Expect to pay from $250 to $400.
- Loan origination: Charged by a lender for originating a new mortgage loan. This fee is normally what the loan officer is paid to do the refinance. The common loan origination fee is approximately 1% of the loan amount.
- Credit report: Lenders will charge to pull a copy of your credit report. This fee can be up to $35.
- Doc prep fee: Some mortgage loan companies may charge additional fees to prepare and mail documents. The fees can be up to $400.
Takeaway on Refinance Closing Costs
Closing costs are a requisite when finalizing a refinance, akin to the process when you originally obtained your loan. These costs often encompass appraisal fees, attorney fees, and title insurance fees, all consolidated into the overall closing costs. Typically, you can anticipate disbursing approximately 2% to 6% of your refinance’s total value to cover these closing expenses.
The bottom line is closing costs on a refinance will cost you approximately 1.5%, according to recent data. Whether you pay that up front or within the loan is up to you. Just note you will pay more over time on your loan if you choose to roll those costs into your new loan.
References
- No Closing Cost Refinance Mortgage Hidden Costs. (2017). Retrieved from https://thelendersnetwork.com/no-closing-cost-refinance-mortgage-hidden-costs/
- The Mortgage Reports Cost to Refinance
About RefiGuide.org
Bryan Dornan is a financial journalist and currently serves as Chief Editor of RefiGuide.org. Bryan has worked as a mortgage loan officer in the industry for over 20 years and has a wealth of experience in providing mortgage clients with the highest level of service in the industry. Bryan's continual focus is to promote affordable home-ownership to consumers like you across the United States. He also writes for RealtyTimes, Patch, Buzzfeed, Medium and other national publications. Find him on Twitter, Muckrack, Linkedin and ActiveRain.
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