The Cost To Refinance a Mortgage and When To Do It

Written By
I. Mitic
July 05,2023

Refinancing a mortgage loan can be a very smart move. It can decrease your monthly payment, shorten your payoff term, or consolidate high-interest debt. But, how much does it cost to refinance a mortgage, and is that option right for you? You will find the answers to these questions below.

Reasons To Refinance Your Mortgage

Before we jump into the exact mortgage refinance closing costs, let’s go over the benefits of this financial maneuver:

Lower Your Interest Rate

When pondering whether to get a mortgage loan, the interest rate is usually the deciding factor. The interest rate you end up getting will always be affected by the state of the market and your credit score. 

However, both things change over time; within a few years, you could refinance your mortgage and get a much lower interest rate. This would allow you to reduce the amount of debt you have to repay and save money as a result.

Shorten or Lengthen Your Term

One of the most common reasons people decide to change their loan term is because their income increased after they took out their original mortgage. Back then, they might have settled for a 30-year repayment period to not get overwhelmed by their monthly mortgage payment.

But with more money going into their budget, a borrower might wish to opt for mortgage refinance and become debt-free as soon as possible. In addition to that, a shorter loan term also means paying lower interest costs overall.

If, however, you find yourself in a tight spot and would benefit from having more time to settle the debt, you can lengthen your term and take some pressure off.

Cash-Out Refinance and Debt Consolidation

With enough home equity, it’s worth considering cash-out refinance. This means obtaining a new, bigger loan than your previous one and pocketing the difference. 

You can use the extra funds for consolidating some outstanding debts, furnishing your home, home improvements, or covering unexpected expenses.

Although this way of refinancing a mortgage sounds almost too good to be true, bear in mind that it translates to higher interest. So do the cost-benefit analysis and make sure this is indeed the right choice before opting for it.

Turn an Adjustable-Rate Mortgage Into a Fixed-Rate Mortgage

Some first-time homebuyers tend to get an adjustable-rate mortgage because it offers low interest rates at the beginning of the loan term. The problem is that the interest rate keeps fluctuating during the life of the loan and, although that can sometimes be beneficial to the borrower, more often it becomes rather costly. 

People frequently refinance a mortgage from an adjustable to a fixed rate once their financial situation improves. After all, predictability is certainly something to strive towards with such huge sums of money.

However, even though the interest rate remains unchanged throughout the loan term, you shouldn’t forget that the amount of interest you’ll pay with a fixed-rate mortgage is still determined by the length of said term. Another important detail you should be aware of is that fixed-rate loans are harder to qualify for.

How Much Does It Cost To Refinance a Mortgage?

Usually, you can expect to pay between 2% and 6% of your loan balance in closing costs. For instance, to refinance a $400,000 mortgage, you’d need to set aside between $8,000 and $24,000.

As you can see, these figures are far from negligible, which is why mortgage refinance shouldn’t be taken lightly. But worry not; we’re here to help you understand exactly where your hard-earned cash would go. We’ve prepared a thorough breakdown of the most common lender fees included in refinance closing costs:

  • The application fee: This is required with most loan types and covers the costs of the loan approval process. It’s paid upfront and, depending on your chosen lender, can range from $75 to $500.
  • The appraisal fee: All mortgage refinance companies will ask you to submit a home appraisal as part of your loan application. Based on the value of the property serving as collateral for the loan, lenders determine how much money to offer you. A typical appraisal costs around $400, but a detailed appraiser report can run you over $1,000.
  • The loan origination fee: This refinance fee is similar to the application fee in that even the best mortgage lenders charge it for processing. The difference is that, in this case, you’re usually paying to have an account established with the company providing the funds. It usually ranges between 0.5% and 1.5% of your loan principal.
  • The recording fee: You’ll have to pay a government agency to legally record your deed, mortgage, and the documents associated with your home loan. According to the latest mortgage statistics, the national average for recording fees is $125.
  • The credit report fee: Applying for a home refinance means your lender will want to check your credit by requesting a credit report from the credit bureaus. Credit report fees range from $30 to $50 per report; fortunately, some lenders cover this cost themselves.
  • Title search and insurance fee: In a title search, a title company or attorney examines public records and legal documents regarding the history of a piece of real estate to make sure the property title doesn’t have any defects. Title insurance essentially protects you from these defects. You can expect this fee to add between $400 and $900 to your overall refinance costs.
  • The closing fee: Closing costs are levied when you obtain your loan. To cover them, you’ll need to set aside between $500 and $1,000.

You’ve probably realized that the average closing costs for refinancing are similar to those you’ve already seen when you took out your first mortgage loan. Other, third-party fees you commonly won’t find included in lists such as this one are property taxes, mortgage insurance, and homeowner’s insurance.

Keep them in mind, as well.

You can also try and negotiate your mortgage refinancing costs. Some lenders may waive certain refinancing fees, such as application or origination fees.

When Should You Refinance Your Mortgage?

There are a few key points to consider when looking into refinancing your mortgage. The first is whether or not you will save money on your monthly mortgage payments.

The second is how long you plan to live in your current home. If you plan to move within the next few years, refinancing may not be worth it. 

Finally, refinancing can also provide an opportunity to reduce your interest rate and build equity more quickly. 

When considering refinancing your mortgage, be sure to compare offers from multiple lenders to get the best deal possible. It’s also important to consider the fees associated with refinancing, such as underwriting and processing fees.

If you decide that refinancing is right for you, the process is relatively straightforward. You’ll need to submit an application with your current lender or a new one and provide information about your financial situation and employment history.

Once approved, you’ll sign a new mortgage agreement and begin making payments on your new loan. The entire process can take several weeks, so be sure to plan accordingly.

Further Reading


Is there any downside to refinancing?


Although it may sound like an easy fix for many problems, mortgage refinance does have certain disadvantages. If you choose cash-out refinance, you will reduce your home equity. 
Additionally, the comfort of stability that homeowners achieve by transferring to a fixed-rate mortgage deprives them of taking advantage of potentially lower interest rates that would be accessible with the adjustable-rate mortgage.

Not to mention that, while reducing the loan term with mortgage refinance might lower your total interest significantly, it will also make way for higher monthly payments. Lastly, the process of refinancing itself is quite expensive; read more in our “The Cost To Refinance a Mortgage and When To Do It” guide.

Can you be denied a refinance?


Lenders determine whether to approve your refinance application in the same manner they would if you were applying for any other type of loan. This means that they look at your credit reports, assets, credit history, and your debt-to-income ratio. If they come across something they dislike, such as late payments or a lack of financial experience, lenders might not take you on as a client.

Can I refinance my mortgage with no closing costs?


You can refinance without paying any closing costs upfront, but you should know that doesn’t mean that those costs are simply forgiven. On the contrary, they are, in a way, moved to your principal or exchanged for a higher interest rate. 

Therefore, even though it might look like you’re getting a great deal, keep in mind that, if things sound too good to be true, they probably are. You should know that getting a no-closing-cost-refinance deal on your mortgage just means paying for it a bit later.

Is it worth refinancing for 1 percent?


Refinancing to lower your interest rate by 1% is often worth it. It may not seem like it, but a one-percentage-point lower interest rate would result in significant monthly savings over time. Of course, it goes without saying that, before you commit to a loan offer, you should always shop around for the best possible terms and the lowest refinance fees.

How much should I pay to refinance my house?


Many factors determine mortgage refinance closing costs. The primary candidates are your credit score, new loan term, home equity amount, loan size, and the type of your new mortgage, as well as the state and country where you live. So how much does it cost to refinance a mortgage? Refinancing an average mortgage loan would set you back approximately $5,000.

Can you do an FHA refinance?


If you currently have an FHA loan, you may be able to refinance it with a conventional loan. The Federal Housing Administration program has relaxed eligibility requirements, so even if your home has lost value since you purchased it, you may still qualify for an FHA refinance.

About author

For years, the clients I worked for were banks. That gave me an insider’s view of how banks and other institutions create financial products and services. Then I entered the world of journalism. Fortunly is the result of our fantastic team’s hard work. I use the knowledge I acquired as a bank copywriter to create valuable content that will help you make the best possible financial decisions.

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