Breaking down the cost to refinance

Expect to pay around 1% to 1.5% of your new loan balance toward closing costs for a refinance loan, says Helali. For example, if you have a $250,000 refinance loan, you’d likely be on the hook for between $2,500 and $3,750. That expense includes both lender fees and third-party settlement costs like title fees.

Helali also notes that the way you structure your loan could drastically affect the cost of your refinance. You may have the option to pay extra fees in the form of discount points to lower your interest rate. Discount points are a type of prepaid interest denoted as a percentage of the loan amount. In exchange for paying this interest fee upfront, the lender reduces your rate. For example, instead of a rate of 2.875% with no points, you could opt for a lower rate of 2.5% by paying 1% of your loan amount upfront. This tactic is sometimes referred to as a “buydown.”

Refinance loan fees are “mostly identical” to the lender and third-party loan fees you’d see during a home purchase, says Helali. However, refinancing fees may be slightly lower — typically by 5% to 10% — than loan costs for buying a house, he adds. If the following closing costs look familiar to you, it’s because you’ve probably seen them before when you took out a mortgage to purchase your home.

Loan origination fee

The lender charges a percentage of your new home loan balance to process your refinance. Refinance loan origination fees usually range from 0.5% to 1.% of the new loan amount. Origination fees can vary widely depending on your lender and loan program.

Discount points

Borrowers may have the option to “buy down” their mortgage interest rate by paying this upfront fee. Discount points are calculated as a percentage of the loan balance. Discount point fees differ depending on your lender’s pricing structure, current market conditions, and the loan program you select.

One discount point equals 1% of the loan balance. For example, if your lender charges 1% (or one discount point) to lower the interest rate by 0.25% on a $250,000 loan, you’d pay $2,500 in discount points.

Credit report fee

Lenders will review your credit history before issuing a home loan. By pulling your credit report, the lender also obtains your credit score. A higher credit score typically results in a better interest rate, which could save you interest fees over the life of your home loan.

Appraisal fee

Your lender hires an independent appraiser to ensure the value of your home covers the new proposed loan amount. A mortgage is a secured loan, so your home serves as collateral if you default on payments. A high home value in relation to the loan balance, or greater home equity, can result in a better interest rate for your refinance. For example, a homeowner who borrows $240,000 on a $300,000 home may be quoted a higher interest rate than someone who borrows $100,000 on a home of the same value.

Survey fees

A required fee if property lines are unclear or undocumented.

Prepaid interest charges

As soon as your refinance closes, you’re on the hook for daily interest charges on the new loan. You’ll pay for upfront interest due from the date of closing until the billing cycle begins for your first mortgage payment.

For example, your mortgage payment may be due on the first of every month. Let’s say you close your refinance on March 15th. You’d pay upfront for interest from March 15th to the end of March. Your first mortgage payment would be May 1st, which would reflect the interest fees for the month of April. The amount you’ll pay for prepaid interest depends on your loan amount, your interest rate, the date your refinance loan closes, and the date of your first mortgage payment.

Prepaid taxes and insurance (impound account)

Your lender may require that you deposit money into a type of trust account to be held toward payment of property taxes and home insurance. Every month, part of your monthly loan payment will be directed to this lender-controlled account, sometimes referred to as an escrow account.

The lender, or its designated servicing company, uses the money collected to pay the property tax and insurance payment as the bills become due.

The amount your lender collects depends on your property tax and insurance costs, along with how soon after settlement payments are due. Federal regulations place limits on what lenders require you to deposit when setting up the account.

Settlement fee

You’ll pay a settlement agent, such as an escrow officer or real estate attorney, to facilitate your refinance. The settlement agent handles the paperwork for closing, prepares documents for recording, transfers funds as instructed by the lender or borrower, and oversees other administrative tasks necessary for closing the loan.

Title search fee

Prior to issuing title insurance, the issuing company conducts a search for title issues. Any issues discovered would need to be resolved prior to settlement. Some potential title problems include:

• Unpaid property taxes
• Liens on the property
• Improperly filed deeds
• Unreleased security deeds
• Breaks in the chain of title

Title insurance policy

When you refinance, your lender requires you to purchase a new lender’s title insurance policy. The policy protects the lender against title issues that relate to transfers of ownership, liens, and levies. 

The cost of your title insurance will vary based on your home value and location, but you can expect to pay approximately 0.5% of your loan balance for a lender’s policy.

Title insurance rates vary based on the loan amount and the title company’s fee structure. If you purchased an owner’s title policy when you bought your home, you generally don’t need to pay for a new owner’s policy.

Recording fee

This fee covers the cost to record the deed of trust or mortgage with your local land records office. The Home Buying Institute advises that recording fees range from $50 to $150. Your cost may vary depending on your local recorder’s office fees and the number of pages in the recorded document.

Flood certification fee

To protect its investment (your home in the instance the lender takes ownership), your lender will want to confirm whether or not the property is in a flood zone. If your home sits in a flood zone, your lender probably won’t refinance your home loan unless you purchase flood insurance.

Upfront mortgage insurance premium (UFMIP) for FHA loans

Administered by HUD, UFMIP protects the lender in the event the borrower defaults on their loan.

Funding fee for VA loans

Since VA home loans don’t require mortgage insurance or down payments, the VA charges borrowers a funding fee to offset taxpayer costs for funding the loan program. The funding fee ranges between 1.25% to 3.3% of the VA loan amount. The fee varies based on the loan type, loan amount, and whether it’s the borrower’s first time obtaining a VA loan.

Upfront guarantee fee for USDA loans

To obtain a USDA home loan, borrowers must pay this one-time guarantee fee. For a single-family home, the USDA charges a 1% upfront guarantee fee.

Total cost to refinance

To avoid sticker shock on your Closing Disclosure, it helps to know the typical range for fees that contribute to your overall cost to refinance. This table calculates the costs for a $250,000 refinance loan. These numbers can vary widely by region, so use them as a starting guide: