What you pay for when you refinance
Refinance closing costs fall into four groups. Knowing which group a fee belongs to tells you whether you can negotiate it, shop for it, or just have to budget for it.
Lender fees
What the lender charges to make the loan. This is where offers differ most, so compare it first.
- Origination or underwriting fee
- Processing and administration fees
- Discount points, if you choose to pay them to buy the rate down
Third-party services
Paid to the companies that check the property, your credit and the title. Some of these you can shop for.
- Appraisal, unless the loan qualifies for a waiver
- Credit report and flood certification
- Title search and the lender's title insurance policy
- Settlement or escrow fee, and an attorney in states that require one
Government fees
Set by your county and state, not the lender.
- Recording fees to file the new mortgage and release the old one
- Mortgage or transfer taxes, in the states and counties that charge them on a refinance
Prepaids and escrow deposits
Not really a cost of refinancing. These are bills you'd owe anyway, paid in advance.
- Interest from the closing date to the end of the month
- Homeowners insurance premium, if a renewal is coming due
- An opening deposit for the new loan's escrow account (taxes and insurance)
Two things are usually missing compared with when you bought: there's no owner's title policy to pay for, and no real estate commissions. Prepaids can look large on paper, but the escrow balance on your old loan is refunded after payoff, which often offsets much of the new deposit.
How much refinancing costs, and where to find your number
There is no single answer, which is why any figure you read online should be treated as a rough guide. Closing costs commonly land somewhere in the range of a few percent of the loan, and the main things that move them are:
- Loan size: some fees are flat, others scale with the balance
- Your state and county: recording fees, title insurance pricing and mortgage taxes vary a great deal
- Whether you pay points to lower the rate
- The loan type: a streamline refinance often skips the appraisal and some third-party fees
- The lender's own fee schedule, which is the part most worth comparing
The reliable number is on your Loan Estimate, the standard three-page form every lender must send within three business days of your application. Page two itemizes each cost. Because every lender uses the same form, you can compare offers line by line, and we walk clients through exactly that when we price a file across our lender network.
Paying cash, rolling costs in, or taking a lender credit
You have three ways to cover the costs, and each changes the math differently.
- Pay at closing. The cleanest option. You get the full monthly saving the new loan offers, and your balance doesn't grow.
- Roll the costs into the loan. No cash needed at closing, but the costs become part of your balance and you pay interest on them for as long as you carry the loan. The bigger balance also has to fit within the lender's loan-to-value limits.
- Take a lender credit. Often marketed as a "no-closing-cost refinance." The lender pays some or all of the costs in exchange for a higher rate than you'd otherwise get. Your monthly saving is smaller, but there's nothing to recoup up front.
There is no universally right choice. The credit suits a borrower who may move or refinance again in a few years. Paying the costs suits someone who plans to keep the loan a long time. The worked example below shows why.
Break-even math: a worked example
The break-even point is how long the refinance takes to pay for itself: total closing costs ÷ monthly saving = months to break even. The example below uses a hypothetical refinance with $6,000 in closing costs. The monthly savings are made-up round numbers to show the arithmetic, not an estimate of what any loan would save.
Hypothetical figures, chosen to show the math. They don't reflect any rate, lender or file; your savings and costs will be different.
| Item | Pay at closing | Roll into loan | Lender credit |
|---|---|---|---|
| Closing costs | $6,000 | $6,000 | $6,000 |
| Paid by you at closing | $6,000 | $0 | $0 |
| Added to your balance | $0 | $6,000 | $0 |
| Hypothetical monthly saving | $200 | $170 | $120 |
| Months to recover the $6,000 | 30 | About 35 | Covered by the credit |
| Net saving after 5 years | $6,000 | $4,200* | $7,200 |
| Net saving after 10 years | $18,000 | $14,400* | $14,400 |
Over five years the lender credit comes out ahead; over ten, paying the costs up front wins. In this example the crossover is at 75 months, about six years, which is why how long you'll keep the loan matters as much as the saving itself.
For illustration only. Not a commitment to lend, a rate lock or an offer of credit. Terms vary by lender, by property and by file.
*For the rolled-in column, net saving is the monthly savings minus the $6,000 added to the balance, which you still owe. It ignores the interest on that $6,000, so the real figure is a little lower.
Two cautions. First, a lower payment that comes from stretching the loan back out to 30 years isn't all saving; part of it is paying the balance off more slowly. Our should you refinance guide covers that term-reset trap. Second, plug in your own figures rather than ours: the refinance calculator works out your break-even, and the cash-out refinance calculator does the same when you're taking equity out.
How to reduce the cost to refinance
- Compare at least two or three Loan Estimates, focusing on the lender fees in section A
- Ask whether points are optional, and what the loan looks like with none
- Shop the services the Loan Estimate says you can shop for, such as title and settlement
- Ask the title company about a reissue or refinance rate on the lender's title policy, which some states and insurers offer when the previous policy is recent
- Check whether your loan qualifies for an appraisal waiver
- If you have an FHA or VA loan, look at a streamline refinance, which typically involves fewer third-party costs
- Time the closing late in the month if you want to reduce the prepaid interest due at closing (it doesn't lower the total interest, just the cash needed that day)
- Ask for a lender credit if you may move or refinance again within a few years
If you only need cash and like the rate you already have, a HELOC or home equity loan usually costs less to set up than a full cash-out refinance, because it leaves the first mortgage alone. Veterans can compare the VA IRRRL and VA cash-out on our VA refinance page, and the streamline refinance page covers both FHA and VA streamlines.
Before you apply
If you're new to the process, start with how refinancing a mortgage works for the steps, documents and timeline, then look at the refinance options we place. 8Twelve is a mortgage broker: we compare the same file across our lender network so the cost comparison is done for you, and we'll tell you if the numbers say not to refinance.
