Refinancing a home loan means paying off an existing loan and replacing it with a new one. There are many reasons why homeowners refinance:

• To obtain a lower interest rate
• To shorten the term of their mortgage
• To convert from an adjustable-rate mortgage (ARM) to a fixed-rate mortgage, or vice versa
• To tap into home equity to raise funds to deal with a financial emergency, finance a large purchase, or consolidate debt

Since refinancing can cost between 2% and 5% of a loan’s principal and—as with an original mortgage—requires an appraisal, title search, and application fees, it’s important for a homeowner to determine whether refinancing is a wise financial decision.

Let’s get more insight into this topic.

• Is There a fee to Refinance your Mortgage?
• How much Should Closing costs be on a Refinance?
• Fees included in Refinance closing costs
• How can you Lower Refinance Closing Costs?
• What is the Downside of Refinancing your Mortgage?
• How Often Can You Refinance Your Home?
• Average Cost of Mortgage Refinance
• How Much Does it Cost to Refinance?
• Mortgage Refinance Calculator
• Mortgage Refinance Cost Calculator
• Refinance Cost Calculator
• How Much Does it Cost to Refinance a Mortgage?
• Average Refinance Closing Cost
• What is The Average Closing Cost to Refinance a Mortgage?
• Chase Refinance Rates
• Refinance Fees to Avoid
• No-closing Cost Refinance
• Refinance Closing Costs Calculator
• 6 Best Refinance Companies
• 5 Types of Refinance Mortgage Loans

Is There a fee to Refinance your Mortgage?

While many homeowners may be incentivized to restructure their finances by low mortgage interest rates, the decision to refinance your mortgage should be made based on your personal financial circumstances; this week’s mortgage rates should not be the deciding factor on whether or not you refinance.

Read Also: Structured Settlement Loan

There are nine key considerations to review before applying for a home refinance.

1. Know Your Home’s Equity

The first qualification you will need to refinance is the equity in your home. At the end of the first quarter of 2020, home values were still on the rise in the U.S. according to the Federal Reserve Bank of St. Louis. However, as of the second quarter of 2020, the median sales price of homes sold in the U.S. has declined slightly as a result of the economic recession caused by the global COVID-19 pandemic.

Furthermore, according to data reported by CoreLogic at the end of the first quarter of 2020, U.S. homeowners with mortgages saw their equity increase by a total of nearly $590 billion since the first quarter of 2019, an increase of 6.5%, year over year.

Still, some homes have not regained their value, and some homeowners have low equity. Refinancing with little or no equity is not always possible with conventional lenders. However, some government programs are available. The best way to find out if you qualify for a particular program is to visit a lender and discuss your individual needs. Homeowners with at least 20% equity will have an easier time qualifying for a new loan.

2. Know Your Credit Score

Lenders have tightened their standards for loan approvals in recent years. Some consumers may be surprised that even with very good credit, they will not always qualify for the lowest interest rates. Typically, lenders want to see a credit score of 760 or higher in order to qualify for the lowest mortgage interest rates. Borrowers with lower scores may still obtain a new loan, but the interest rates or fees they pay may be higher.

3. Know Your Debt-to-Income Ratio

If you already have a mortgage loan, you may assume that you can easily get a new one. But lenders have not only raised the bar for credit scores; they have also become stricter with debt-to-income ratios. While some factors—such as having a high income, a long and stable job history, or substantial savings—may help you qualify for a loan, lenders usually want to keep the monthly housing payments under a maximum of 28% of your gross monthly income.

Overall, debt-to-income should be 36% or less, although with some additional positive factors some lenders will go up to 43%.⁵⁶ You may want to pay off some debt before refinancing in order to qualify.

4. The Costs of Refinancing

Refinancing a home usually costs between 3% and 6% of the total loan amount, but borrowers can find several ways to reduce the costs (or wrap them into the loan).

If you have enough equity, you can roll the costs into your new loan (and thus, increase the principal). Some lenders offer a “no-cost” refinance, which usually means that you will pay a slightly higher interest rate to cover the closing costs. Don’t forget to negotiate and shop around because some refinancing fees can be paid by the lender or even reduced.

5. Rates vs. the Term

While many borrowers focus on the interest rate, it’s important to establish your goals when refinancing in order to determine which mortgage product meets your needs. If your goal is to reduce your monthly payments as much as possible, you will want a loan with the lowest interest rate for the longest term.

If you want to pay less interest over the length of the loan, look for the lowest interest rate and at the shortest term. Borrowers who want to pay off their loan as fast as possible should look for a mortgage with the shortest term that requires payments they can afford.

6. Refinancing Points

When you compare various mortgage loan offers, make sure you look at both the interest rates and the points. Points—equal to 1% of the loan amount—are often paid to bring down the interest rate. Be sure to calculate how much you will pay in points with each loan, as these will be paid at the closing or wrapped into the principal of your new loan.

7. Know Your Break-Even Point

An important calculation in the decision to refinance is the break-even point: the point at which the costs of refinancing have been covered by your monthly savings. After that point, your monthly savings are completely yours.

For example, if your refinance costs you $2,000 and you are saving $100 per month over your previous loan, it will take 20 months to recoup your costs. If you intend to move or sell your home within two years, a refinance under this scenario may not make sense.

8. Private Mortgage Insurance

Homeowners who have less than 20% equity in their home when they refinance will be required to pay private mortgage insurance (PMI). If you are already paying PMI under your current loan, this will not make a big difference to you. However, some homeowners whose homes have decreased in value since the purchase date may discover that if they refinance their mortgage, they will have to pay PMI for the first time.

The reduced payments due to a refinance may not be low enough to offset the additional cost of PMI. A lender can quickly calculate whether you will need to pay PMI and how much it will add to your housing payments.

9. Know Your Taxes

Many consumers have relied on their mortgage interest deduction to reduce their federal income tax bill. If you refinance and begin paying less in interest, your tax deduction may be lower. (Although it’s important to keep in mind that few people view that as a good enough reason to avoid refinancing).

However, it is also possible that the interest deduction will be higher for the first few years of the loan (when the interest portion of the monthly payment is greater than the principal). Increasing the size of your loan, as a result of taking cash out or rolling in closing costs, will also affect the amount of interest you will pay.

That said, provisions of the Tax Cuts and Jobs Act, passed into law in December 2017, may affect your desire to use the mortgage interest deduction. The new higher standard deduction—$24,400 for married couples filing jointly in 2020, compared to $12,700 under the previous law—may make itemizing deductions less financially attractive to more taxpayers.

Wealthier homeowners who want to refinance a large existing mortgage will still be able to deduct interest on up to $1 million in mortgage debt, but the limit for new mortgage debt is now $750,000 for homes bought on December 15, 2017, or later. Given these changes, it’s wise to consult a tax advisor for individual information on the impact of refinancing on your taxes.

Like many financial transactions, mortgage refinancing is complex and requires due diligence on the part of homeowners considering it. Speak with a reputable lender for quick answers to some of your concerns. This will help you make the important decision as to whether refinancing is right for you. If it seems like it would be a good move, do the research homework discussed above.

How much Should Closing costs be on a Refinance?

Refinancing your home can help save money on your monthly mortgage payment. It can lower your interest rate, or stretch your mortgage over several more years. 

But, the refinancing process can be expensive. Refinancing essentially replaces your old mortgage with a new one, and that can mean paying closing costs all over again. 

When you refinance, expect to see closing costs similar to what you paid on your first loan. According to data from ClosingCorp, the average home’s closing costs were $5,749 in 2019. The average refinance loan’s closing costs were $5,779, according to a LendingTree report based on ClosingCorp data, a difference of $30. 

Average closing costs by state

One of the big factors that will influence the price you’ll pay on your home’s refinance is where you live. Your home’s location will have a big impact on the closing costs, since your closing costs involve taxes and your home’s value.

According to data from ClosingCorp, the state you live in will change how much you pay at closing. Here’s the average closing cost in each state in 2019.

State	Average closing costs with taxes	Average percentage of sale price
Alabama	$2,416.00	1.39
Alaska	$3,517.00	1.17
Arizona	$3,631.00	1.22
Arkansas	$2,562.00	1.60
California	$6,537.00	1.05
Colorado	$3,672.00	0.86
Connecticut	$7,091.00	2.20
Washington DC	$25,800.00	4.00
Delaware	$13,273.00	4.72
Florida	$6,457.00	2.30
Georgia	$3,658.00	1.58
Hawaii	$6,746.00	1.04
Idaho	$3,063.00	1.06
Illinois	$5,609.00	2.35
Indiana	$1,909.00	0.99
Iowa	$2,194.00	1.27
Kansas	$2,459.00	1.04
Kentucky	$2,276.00	1.32
Louisiana	$3,365.00	1.74
Maine	$3,654.00	1.41
Maryland	$11,876.00	3.65
Massachusetts	$5,964.00	1.20
Michigan	$4,014.00	2.33
Minnesota	$3,785.00	1.52
Mississippi	$2,548.00	1.14
Missouri	$2,063.00	1.02
Montana	$2,773.00	0.95
Nebraska	$2,303.00	1.21
Nevada	$5,546.00	1.67
New Hampshire	$6,271.00	2.28
New Jersey	$6,012.00	1.67
New Mexico	$2,908.00	1.12
New York	$12,847.00	3.05
North Carolina	$2,839.00	1.19
North Dakota	$2,428.00	1.13
Ohio	$3,360.00	2.03
Oklahoma	$2,997.00	1.97
Oregon	$3,969.00	1.11
Pennsylvania	$10,076.00	4.88
Rhode Island	$4,527.00	1.42
South Carolina	$3,316.00	1.45
South Dakota	$2,159.00	1.19
Tennessee	$3,745.00	1.75
Texas	$3,744.00	1.37
Utah	$4,026.00	1.11
Vermont	$5,994.00	2.58
Virginia	$5,959.00	1.80
Washington	$12,406.00	2.86
West Virginia	$3,384.00	2.14
Wisconsin	$2,615.00	1.34
Wyoming	$2,430.00	0.86

Closing costs are higher in some states than in others. In Washington DC, for example, where both property value and taxes are high, the average closing cost is over $25,000. In Wyoming, however, where both property taxes and values are relatively low, the average closing is about $2,400. 

Fees included in Refinance closing costs

Refinancing closing costs aren’t just one fee — there are several expenses that make up closing costs. Much of the money you pay during closing goes to cover administrative fees for the bank, while another significant part of the fee goes to taxes. 

Here’s a list of fees you can expect to see in your refinance process, along with estimates of of what each will cost according to data from the Federal Reserve and ClosingCorp.

Taxes: 

• Average cost: $2,040 according to ClosingCorp data

Property taxes will be one of your more significant expenses when refinancing, and costs vary based on where you live, and your home’s value. According to Bank of America, six months of property tax is generally due at closing.

Application fee: 

• Cost range: $75 to $300

Applying for another mortgage will cost you. While the fees don’t generally go past $300, they’re often not refundable. 

Loan origination fee: 

• Cost range: Up to 1.5% of the loan’s principal

Not all lenders charge this administrative fee, but some do. It could be a costly addition to your closing costs — a $200,000 mortgage balance with a 1.5% origination fee would add $3,000 to your closing costs.

Appraisal fee: 

• Cost range: $300 to $700, if needed

If your home hasn’t been appraised recently, you may need to pay for an appraisal. This process has someone assess your home’s value. Some lenders also roll the appraisal costs into the application fee. 

Inspection fee:

• Cost range: $175 to $350

While the appraisal focuses on value, an inspection focuses on structural integrity and looks for larger issues. Generally done by a property inspector, an inspection may cover things like the home’s water and sewage system and checking for termites. 

Title search and insurance: 

• Cost range: $700 to $900

Lenders search for your home’s title to make sure you’re the owner, and check for any liens you have on the home. If there’s a mistake on the title that would jeopardize their investment, the title insurance steps in. But, it’s a cost you’ll pay for in your closing costs. 

Survey fee:

• Cost range: $150 to $400, if needed. 

If your home hasn’t had a survey recently, your lender could require one. This essentially verifies that your home and all of its structures are where the title says they are. 

Attorney review and closing fee:

• Cost range: $500 to $1,000

The company or lawyer that conducted your home’s closing will need to be paid for their work, and this will become part of your closing expenses. 

Prepayment penalty:

• Cost range: One to six months’ interest payments, if applicable.

Some lenders charge prepayment penalties on loans paid off before expected. Since a mortgage refinance will essentially pay off your old loan before your expected payoff date, your old lender could charge a prepayment penalty.

Not all loans have a prepayment penalty involved, and they aren’t allowed in some states by law. Ask your lender if your current mortgage has a prepayment penalty, and if so, how much it is. 

How can you Lower Refinance Closing Costs?

When interest rates are low there’s usually a big rush to refinance mortgages. There are many reasons borrowers consider refinancing, such as the prospect of a lower interest rate or ability to roll all other debts into one mortgage payment. But not everyone runs out to the bank to do so.

Part of the reason some homeowners don’t consider refinancing is that it may cost more to do so. In particular, in order to realize the savings, homeowners have to stay in their home long enough to recoup the money spent on the closing costs. Thankfully, borrowers don’t have to pay full price when it comes to refinancing closing costs.

Closing Costs

Closing costs are any fees borrowers incur when completing a real estate transaction. These are charges paid above the total purchase price of the property. Closing costs are paid when the deal closes and the property’s title is transferred from the buyer to the seller. But closing costs are also paid when refinancing a mortgage.

Closing costs normally range between 2% to 5% of the total purchase price and may be paid by either the buyer or the seller—or both.

Closing costs include, but aren’t necessarily limited to:

• Loan origination fees
• Appraisal fees
• Title insurance
• Title search fees
• Survey costs
• Fees for your credit report
• Taxes

Lenders are required to provide a good faith estimate (GFE) of closing costs along with a list of what fees are expected.

Shop Around

Most consumers don’t think twice about shopping around when it comes to making a large purchase such as a car or a TV, so why not do the same for a mortgage? Borrowers need the same discipline when seeking out a mortgage refinance as they do when looking for a great deal on a new sofa. Since every lender offers different interest rates, terms, and costs to borrow money, borrowers have to shop around to get the lowest closing costs.

Start with your existing mortgage lender. Since you’re a loyal customer, they may be able to help you out. If you mention that you’re going to shop around, there’s a good chance they’ll do what they can to keep your business.

Before you sign with your existing lender, check out what the competition has to offer. Be sure to include a credit union, a local bank, or even an online lender in your analysis. Try to get at least three quotes comparing the same fees and expenses. As noted above, lenders are required to provide a GFE of the costs to close. With this figure in hand, you can make an accurate comparison of what other lenders are going to charge you in closing costs.

Ask for a No-Closing Cost Refinance

For homeowners who don’t have the money saved for closing costs, they can ask their lender to waive the closing costs. This is called a no-closing cost refinance. While you won’t have to bring money to the table when closing on the new loan, it may cost you more in the long run.

In order to waive the closing costs, the lender usually charges a higher interest rate over the entire length of the loan. This often ends up being more expensive than paying the closing costs immediately.

This strategy may work in your favor if you plan on refinancing again or if you don’t plan to stay in your home for more than five years. After all, it can take that long to recoup the closing costs. The extra interest payments often won’t be as much as the closing costs if you act sooner rather than later.

Loyalty Has Its Benefits

Record low-interest rates lead to stiff, fierce competition for mortgage business. As mentioned above, this means your current lender will want to keep your business. In order to do so, they may go to great lengths to continue being your mortgage loan provider. But the lender isn’t going to offer you discounts if you don’t ask for them.

To potentially reduce some of the closing costs of a refinance, ask for closing costs to be waived. The bank or mortgage lender may be willing to waive some of the fees or even pay them for you to keep you as a customer.

Negotiate a Reduction in Lender Fees

Not all fees are created equal, which means one lender is going to charge different rates compared to another one down the block. While some of the closing costs aren’t going to be negotiable, there are areas where you can get a reduced rate.

For instance, you can ask the lender to waive the application and processing fees. The application fee covers administrative costs that come with applying for the refinancing, while the processing fee is the cost to put the loan through.

Lenders may not be willing to lower their origination fees, but knowing how much you’ll pay on average can also help when you’re shopping around. The origination fee is typically 1% of the loan amount. With a $300,000 refinance, the origination fee should be $3,000. If you deal with lenders that charge more than 1%, it may be time to shop around.

You can even lower the amount you pay for title insurance by shopping around. Sure, your lender will have a preferred insurer they want you to use but it’s only a suggestion. The one area where you won’t be able to negotiate a lower price is with the appraisal as the lender orders that one for you.

Refinancing into a lower mortgage is going to save you money, but just like everything else, it doesn’t happen for free. You still have to pay closing costs—the same way you would when you take out your very first mortgage.

How much you pay in closing fees varies from one lender to the next, which is why shopping around is almost always a requirement. Asking for discounts and seeing what loyalty gets you with your existing lender are also ways to lower the amount you pay to refinance your loan into a lower interest rate.

What is the Downside of Refinancing your Mortgage?

Mortgage refinancing is not always the best idea, even when mortgage rates are low and friends and colleagues are talking about who snagged the lowest interest rate. This is because they can be time-consuming, expensive at closing, and will result in the lender pulling your credit score.

Before you begin the long process of gathering pay stubs and bank statements, think about why you are refinancing. While some financial goals—such as easing your monthly cash flows, dealing with a financial emergency, or paying off your home loan sooner—can be met with a refinance, here are seven bad reasons to refinance your mortgage.

1. To Consolidate Debt

Consolidating debt is often a good thing, but it has to be done right. In fact, debt consolidation done wrong can end up being one of the most dangerous financial moves any homeowner can make. On the surface, paying off high-interest debt with a low-interest mortgage seems like a smart move, but there are some potential pitfalls.

First, you are transferring unsecured debt (such as credit card debt) into debt that is backed by your home as collateral. If you are unable to make your mortgage payments, you can lose that home. While nonpayment of credit card debt can have negative credit score consequences, they are usually not as dire as a foreclosure.²

Second, many consumers find that, once they have repaid their credit card debt, they are tempted to spend again and will begin building up new balances that they will have more trouble repaying.

2. To Move into a Longer-Term Loan 

While refinancing into a mortgage with a lower interest rate can save you money each month, be sure to look at the overall cost of the loan. For instance, if you have 10 years left to pay on your current loan and you then stretch out the payments into a new 30-year loan, you will end up paying more in interest overall to borrow the money and be stuck with 20 extra years of mortgage payments.

3. To Save Money for a New Home 

As a homeowner, you need to make an important calculation to determine how much a refinance will cost and how much you will save each month. If it will take three years to recoup the expenses of a refinance and you plan to move within two years, that means despite the lower monthly payments, you are not saving any money at all.

4. To Switch from an ARM to a Fixed-Rate Loan

For some homeowners, this can be an excellent move, particularly if you intend to stay in the home for years to come. But homeowners who are simply afraid of the bad reputation of an adjustable-rate mortgage (ARM), should carefully look at their ARM terms before making a move to refinance.

If you have an ARM, make sure you know what index it is tied to, how often your loan adjusts, and even more important, your caps on the loan adjustments: the first cap, the annual cap, and the lifetime cap. It may be that a fixed-rate loan is better for you, but make sure you do the math before committing to spending money on a refinance. 

5. To Take Cash Out for Investing

Even when the stock market isn’t rocky, this is not a generally good idea. The problem with cash is that it is too easy to spend. If you are disciplined and will truly use the extra money to invest—or to build your emergency fund—this can be a good option.

However, paying down a mortgage at 4% per year can be a better deal than plunking your cash into a CD that earns 2% every year. Make sure you are a savvy investor who understands both the risks and potential upside before playing with the equity in your home.

6. To Reduce Your Monthly Payments

In general, reducing your monthly payments by lowering your interest rate makes financial sense. But don’t ignore the costs associated with refinancing. In addition to the closing costs and fees, which can range from 2% to 3% of your home loan, you will be making more mortgage payments if you extend your loan terms.

If, for example, you have been making payments for seven years on a 30-year mortgage and refinance into a new 30-year loan, remember that you will be making seven extra years of loan payments. The refinance may still be worthwhile, but you should roll those costs into your calculations before making a final decision.

7. To Take Advantage of a No-Cost Refinance

A “no-cost” mortgage loan does not exist, so be careful when you see such an offer. There are several ways to pay for closing costs and fees when refinancing, but in every case, the fees are paid in one way or another. In other words, homeowners can pay cash from their bank account for a refinance, or they can wrap the costs into their loan and increase the size of their principal.

Another option is for the lender to pay the costs by charging a slightly higher interest rate or including closing points. You can calculate the best way for you to pay the costs by comparing the monthly payments and loan terms for each scenario before choosing the loan that works best for your finances.

How Often Can You Refinance Your Home?

While there are no regulations that cap how often you can refinance your home, lenders typically set their own limits. Some also impose prepayment penalties on existing loans. Your ability to refinance also depends on the equity you have in your home and your credit score. If your score is lower than the last time you refinanced, you may not get approval from your lender.

Finally, keep in mind that every time you refinance, you’ll pay closing costs and fees which can take years to recoup and your credit will be pulled by lenders, which can negatively impact your credit score if done too frequently.

Average Cost of Mortgage Refinance

The average closing cost for refinancing a mortgage in America is $4,345. These costs may vary depending on the lender and location of the mortgaged property. Additionally, the amount you borrow will impact the cost of the refinance.

Refinances advertised with “no closing costs” or “no fees” often fold those charges into the interest rate, amount borrowed, or monthly payments of the new mortgage.

To help illustrate the underlying costs associated with a refinance, we’ve itemized the most common fees below. We’ve also described a few of the costs specific to refinancing in more detail. See our article on closing costs:

Fees	Range	Average Cost
Mortgage Application Fee	$75 – $500	$235
Property Appraisal Fee	$225 – $700	$480
Loan Origination Fee	0 – 1.5% of Loan Principal	1% of Loan Principal
Inspection Fee	$175 – $350	$255
Survey Fee	$150 – $400	$275
Attorney and Closing Fees	$500 – $1,000	$750
Title Search and Title Insurance	$400 – $900	$733
Local Recording Fee	$25 – $250	$138
Reconveyance Fee	$50 – $65	$58

The closing costs for a mortgage refinance are similar to the closing costs for a new mortgage. Estimated refinance costs exclude property taxes, mortgage insurance, and homeowner’s insurance, which are typically required before purchasing a new home but may not be relevant when refinancing a property you already own.

Local Recording Fee: Local statutes require updated deeds to reflect the status of a new mortgage. This fee will vary according to the township in which your property is located.

Reconveyance Fee: The lender of the original mortgage may charge a reconveyance fee to release their interest from the property.

The following fees may be mandatory under certain circumstances but do not apply in all scenarios.

Fees	Average Cost
Homeowner’s Insurance	$650 variable based on property
Points	1% of Loan Amount reduces loan interest rate by ~0.25%
Flood Certification	$100
Yield-Spread Premium	Approximately 0.25% of Loan Amount

Homeowner’s Insurance: You should be able to avoid paying additional costs for this if you are able to submit proof of adequate coverage on your home.

Points: These include loan-discount points and lender credit points. These reduce either the overall or upfront costs of the borrower.

Flood Certification: This is required for properties that fall within designated flood-zones, mandated by the National Flood Insurance Program. Properties that fall outside flood-zones are excluded from this charge.

Yield-Spread Premium: This applies to borrowers conducting their search through a mortgage broker, and acts as a commission for arranging the transaction.

How Much Does it Cost to Refinance?

The cost to refinance can range from 2% to 6% of your loan amount, depending on several factors including:

• The size of your loan
• Your lender
• Your location
• Your credit score
• Your available home equity
• Mortgage term
• Mortgage type

Before you refinance, consider how much you’ll have to pay in closing costs and compare that with how much the refinance could save you over time. The table below breaks down some typical costs to refinance.

Common mortgage refinance fees

Type of fee	Amount
Application fee	$75 to $500
Origination fee	Up to 1.5% of loan amount
Credit report fee	$30 to $50
Home appraisal	$300 to $400
Home inspection	$300 to $500
Flood certification fee	$15 to $25
Title search and insurance fee	$400 to $900
Recording fee	$25 to $250
Reconveyance fee	$50 to $65

When trying to decide if a refinance is worth it, a major factor to consider is how long you plan to stay in your home. Weigh the costs to refinance against your monthly savings and future goals by calculating your break-even point.

Your refinance savings could be significant if you plan to stay in your current house for the long haul and a refinance gets you a better interest rate and/or repayment term. However, if you’re moving in a couple of years, it might not be worth it.

Mortgage Refinance Calculator

our total savings during the time you plan to stay in your home is made up of two parts: cash savings and the difference in the amount you’ll still owe on your new mortgage.

What are cash savings? That’s the difference between your current monthly mortgage payments and your new monthly mortgage payment (minus the amount you’ll need to pay for closing costs — about 3% of the loan). In other words, it’s cash in your pocket.

What’s the difference in the amount you’ll still owe? That’s the difference between the amount of principal on your current mortgage and the amount of principal you’ll owe on your new loan when you refinance.

Understanding the breakeven period

The breakeven period represents the number of years you’ll have to make the new monthly payment before you recoup the costs of refinancing.

Nerd Tip: It typically makes sense to refinance your mortgage if you’re planning to stay in your home for longer than the breakeven period.

Mortgage Refinance Cost Calculator

This mortgage refinance cost calculator provides customized information based on the information you provide. But, it also makes some assumptions about mortgage insurance and other costs, which can be significant.

Before you refinance, make sure you’re aware of the costs associated with doing so. The cost to refinance a mortgage can vary depending on several factors. For example, the interest rate, credit score and loan amount. Our mortgage refinance cost calculator can help you figure out how much it will cost to refinance your mortgage.

Refinance Cost Calculator

You already know what your monthly payment is and how much you still owe. But you also need to know how much of each payment goes toward your interest cost, and how much of each payment reduces your loan balance every month.

To get those numbers, use an amortization table, which you can get from several places. In addition to the Google Sheet above, you can use Excel to calculate amortization, an online calculator, or any other spreadsheet software.

This example shows how to calculate your refinancing options using Google Sheets or Excel, but the process is the same with any amortization table.

Assume the following loan details:

• Original loan amount: $180,000
• Original loan date: Nine years ago
• Interest rate on the loan: 5.4%
• Loan term: 30 years

To obtain the details of your original loan, enter them into your amortization calculator. Use your original loan amount—not the amount you currently owe.

How Much Does it Cost to Refinance a Mortgage?

Your Closing Disclosure tells you exactly what you need to pay at closing. Here are a few of the closing costs you might see when you refinance:

• Application fee: Some lenders charge an application fee due when you apply for your refinance. You must pay your application fee even if the lender rejects your refinance request.
• Appraisal fee: Most lenders require appraisals before refinancing. Most appraisers charge $300 – $500 for their services.
• Attorney fees: In some states, an attorney must review and file paperwork for your loan. Attorney fees can vary widely by state.
• Title search and insurance: Your lender may require another title search when you refinance your loan.

Expect to pay 2% – 3% of your loan balance in closing costs. You may be able to roll your closing costs into your loan balance, depending on your lender’s requirements. 

Average Refinance Closing Cost

As with your first mortgage, look closely at the loan estimate from your lender to see the breakdown of costs. You may save yourself some money by negotiating closing costs, especially if you’ve shopped around and have more than one refinance offer in hand. If some fees seem unusually high, including the application fee, underwriting fee or rate-lock fee, it’s worth questioning the lender to see if these can be lowered. 

“Your best course of action is to do some comparison shopping,” says Kim Bragman, broker associate at Phyllis Browning Company in San Antonio, Texas. “It’s not so much about negotiating as it is shopping around for the best prices, both in terms of interest rates and closing costs.”

Generally, you can expect to pay 2 percent to 5 percent of the loan principal amount in closing costs. For a $200,000 mortgage refinance, for example, your closing costs could run $4,000 to $10,000.

Here’s a breakdown of the fees commonly included in refinance closing costs:

Closing costs	Fee
Application fee	$75-$300 or more
Origination and/or underwriting fee	0.5%-1.5% of loan principal
Recording fee	Cost depends on location
Appraisal fee	$300-$400 or more
Credit check fee	$25 or more
Title services	$700-$900
Survey fee	$150-$400
Attorney/closing fee	$500-$1,000

What is The Average Closing Cost to Refinance a Mortgage?

Closing costs aren’t a set amount, though. They vary depending on where you live, your loan amount, your lender, the loan program, whether or not you’re cashing out your home equity, and other factors.

Major closing costs you’ll pay when refinancing a mortgage include:

• Loan origination fee – 1%–1.5% of the loan amount
• Discount points (optional) – 0%–1% of loan amount or more
• Application fee – $75–$300
• Credit check fee – $25
• Home appraisal fee – $500–$1,000+
• Title search and title insurance – $300–$2,000+
• Survey fee – $150–$400
• Attorney fees – $500–$1,000
• Recording fees – $25–$250 (depending on location)
• Processing and/or underwriting fee – $300–$900 each
• Prepaid taxes and homeowners insurance – varies

These are just the big–ticket items.

Chase Refinance Rates

LOAN TYPE	RATE	APR)
30 year Fixed	2.990%	3.060%
15 year Fixed	2.125%	2.280%
7/6 month ARM	2.250%	2.635%
5/6 month ARM	2.125%	2.619%
30 year Jumbo	2.750%	2.833%

The annual percentage rate (APR), is the cost of credit over the term of the loan expressed as an annual rate. The APR shown here is based on the interest rate and any points. It does not take into account the processing fee or any other loan specific finance charges you may be required to pay. Rates are estimated by state and actual rates may vary.

Refinance Fees to Avoid

Homeowners who don’t have the money saved for closing costs can ask their lender to waive the closing costs. This is called a “no-closing-cost refinance.” While you won’t have to bring money to the table when closing on the new loan, it may cost you more in the long run.

To waive the closing costs, the lender usually charges a higher interest rate over the entire length of the loan. This often ends up being more expensive than immediately paying the closing costs.

This strategy may work in your favor if you plan on refinancing again or don’t plan to stay in your home for more than five years. After all, it can take that long to recoup the closing costs. The extra interest payments often won’t be as much as the closing costs if you act sooner rather than later.

Not all fees are created equal; one lender is going to charge different rates compared with another one down the block. While some closing costs aren’t going to be negotiable, there are areas where you can get a reduced rate.

You can ask the lender to waive the application and processing fees, for example. The application fee covers administrative costs that come with applying for the refinancing, while the processing fee is the cost to put the loan through.

Lenders may not be willing to lower their origination fees, but knowing how much you’ll pay on average can also help when you’re shopping around. The origination fee is typically between 0.5% and 1% of the loan amount.6 With a $300,000 refinance, the origination fee should be $3,000 at most. If you deal with lenders that charge more than 1%, it’s definitely worth it to shop around.

You can even lower the amount you pay for title insurance by shopping around. Sure, your lender will have a preferred insurer it wants you to use, but that’s only a suggestion. The one area where you won’t be able to negotiate a lower price is the appraisal, because the lender orders that one for you.

No-closing Cost Refinance

As the name suggests, a no-closing-cost refinance is a refinance where you don’t have to pay closing costs when you get a new loan. But just because there are no upfront costs doesn’t mean that your lender foots the bill for free. No-closing-cost refinances don’t get rid of a borrower’s expenses; they only move them into your principal or exchange them for a higher interest rate.

The simplest no-closing-cost refinance takes the amount that you would have paid during closing and tacks it onto your new mortgage. In other words, your lender adds the balance of your closing costs to your principal or the unpaid balance of your loan. This increases your monthly payments but doesn’t affect your interest rate.

Your lender may also allow you to take a higher interest rate in exchange for waiving your closing costs. Your interest rate is the amount you pay to your lender per month for borrowing. Refinance interest rates depend on many different factors. A higher interest rate doesn’t change your principal amount, but you’ll still pay more each month.

Refinance Closing Costs Calculator

The refinance calculator is provided to help you with general information regarding the possible benefits of refinancing your first mortgage. The results returned by this calculator should only be used as one of many factors in evaluating your options.

This calculator returns information based on your inputs regarding your existing mortgage information. It is important that you provide accurate information in order to receive more realistic results.

This calculator can only provide a general overview of your situation based on the information you provide. Your mortgage company may use different information to determine eligibility and your individual results may vary from the results shown by this calculator.

6 Best Refinance Companies

Bank of America

Bank of America is a favourite bank for refinancing because they can refinance many loan types and they have online, phone, and branch services.

Interest on refinancing for a 30-year fixed-rate loan is 3.250%, and 2.500% for a 15-year fixed-rate loan. A 5/1 ARM has an interest rate of 2.625%.

Current BOA customers can qualify for a reduction of up to $600 in closing fees when they refinance. The bank also offers online mortgage applications to get pre-qualified, pre-approved, and lock in your rate through either its website or mobile app. 

Those seeking to refinance into a BOA loan need to have at least a 620 credit score for a conventional loan, 640 for an FHA loan, and 660 for a VA loan.

Bank of America is a traditional bank option offered in all 50 states. Its interest starts at 2.500% and can go up to 3.250%. Since this is a traditional bank, customers can expect to produce much more personal documentation than alternative lenders.

This can include employment information, tax returns, and other papers related to your current property. It is one of the world’s largest banks with an established reputation for stability.

PennyMac Financial Services

Founded in 2008, PennyMac is a national mortgage lender with more than $473 billion in loans serviced. PennyMac offers a range of home loans, including conventional, Federal Housing Administration, Veterans Affairs and investment property mortgages.

Before You Apply

• Mortgage types: Conventional, Fixed Rate, FHA, VA, ARM, USDA, Refinancing
• Minimum FICO credit score: 620
• Minimum Down Payment: 0.03
• Better Business Bureau rating: A+

Lending Tree

LendingTree is not a mortgage provider, nor is it a broker. Like a broker, the company connects consumers with multiple banks and loan companies.

However, LendingTree doesn’t steer you through the mortgage process like a broker does, but rather serves as a lead-generation tool that allows lenders to essentially bid on homebuyers and refinancers who fit their criteria. Nor does it charge a fee as a percentage of the loan amount as a broker would.

• LendingTree is a third-party service that takes a borrower’s information and submits it to multiple lenders, who then contact the borrower.
• A borrower submits an application with info on their financials. LendingTree obtains their FICO score and then sends the application to loan providers in their network who cater to consumers with that level of creditworthiness.
• LendingTree makes it easy to compare loan terms and get lenders to compete for your business.
• Some borrowers complain of getting inundated with calls or emails, although the company says you can take steps to mitigate that result by simply withholding your phone number when entering your personal information.

LendingTree offers a fast and free way to get multiple mortgage quotes. But anyone expecting a hassle-free experience is cautioned to use the myLendingTree app, which the company says will keep lenders from calling or emailing you without your consent.

Flagstar Bank

Flagstar offers banking and lending products in every state. Borrowers can select from conventional or government-backed mortgages, such as FHA, VA and USDA loans, and opt for adjustable-rate mortgages.

Before You Apply

• Mortgage types: ARM, Conventional, FHA, Fixed Rate, Home Equity Loans, Jumbo, Refinancing, USDA, VA
• Minimum FICO credit score: 620
• Maximum Down Payment: 10%
• Better Business Bureau rating: A+

Navy Federal Credit Union

Navy Federal Credit Union serves more than 10 million members of the military community in 30 states, Washington, D.C., and Guam. Qualifying credit union members can choose from options such as conventional, refinance or Department of Veterans Affairs loans.

Before You Apply

• Mortgage types: ARM, Conventional, Fixed Rate, Home Equity Loans, Refinancing, VA
• Minimum FICO credit score: Not disclosed
• Maximum Down Payment: 5%

Better Mortgage

Better Mortgage is a digital lender with an easy mortgage refinance process that is fast and straightforward. Consumers can obtain a rate quote and a letter of preapproval from Better in just a few minutes. The lender also claims it can close mortgages in as little as 14 days.

Better’s loan programs offer low-interest rates and some of the lowest closing costs in the industry. The company can afford to forego some of the fees charged by traditional brick-and-mortar lenders, such as application, underwriting, and origination fees, since they operate fully online. Additionally, Better offers a price guarantee if another lender has a more competitive price on their refinance products.

Loan Types Offered:

• Adjustable-rate mortgage
• Fixed-rate mortgage

Better customers can upload and sign all of their documents through the lender’s secure website. They also have direct access to one of the company’s dedicated loan officers.

5 Types of Refinance Mortgage Loans

Choosing among the different types of mortgage loans isn’t all that painful if you know the lingo. Here’s a primer on some of the most common types of mortgages.

1. Fixed-rate mortgage

Fixed-rate mortgages keep the same interest rate over the life of your loan, which means your monthly mortgage payment always stays the same. Fixed loans typically come in terms of 15 years, 20 years or 30 years.

If you plan to stay in your home for at least seven to 10 years, a fixed-rate mortgage offers stability with your monthly payments.

2. Cash-out refinancing

Cash-out refinancing may also feature customization of the rates or terms of the mortgage loan. However, the main distinction for cash-out refinancing is that the new mortgage loan is greater than the initial mortgage loan.

The value of the new mortgage in excess of the old mortgage is subsequently paid out as tax-free cash to the borrower. It is tax-free since the amount paid out does not contribute to taxable income for the borrower.

For example, if a current mortgage is $200,000, but the borrower wishes to cash out on the equity portion of the property, they may initiate a cash-out refinancing that increases the mortgage to $250,000, and they receive $50,000 in tax-free cash.

3. Adjustable-rate mortgage

Unlike the stability of fixed-rate loans, adjustable-rate mortgages have fluctuating interest rates that can go up or down with market conditions. Many ARM products have a fixed interest rate for a few years before the loan changes to a variable interest rate for the remainder of the term.

Look for an ARM that caps how much your interest rate or monthly mortgage rate can increase so you don’t wind up in financial trouble when the loan resets.

4. FHA Insured Loan

Backed by the FHA, these types of home loans help make homeownership possible for borrowers who don’t have a large down payment saved up or don’t have pristine credit. Borrowers need a minimum FICO score of 580 to get the FHA maximum of 96.5 percent financing with a 3.5 percent down payment; however, a score of 500 is accepted if you put at least 10 percent down.

Read Also: National Guard VA Home Loan

FHA loans require two mortgage insurance premiums: one is paid upfront, and the other is paid annually for the life of the loan if you put less than 10 percent down, which can increase the overall cost of your mortgage.

5. Home Equity Line of Credit

A home equity line of credit, also known as a HELOC, is a line of credit secured by your home that gives you a revolving credit line to use for large expenses or to consolidate higher-interest rate debt on other loans such as credit cards.

A HELOC often has a lower interest rate than some other common types of loans, and the interest may be tax deductible. Please consult your tax advisor regarding interest deductibility as tax rules may have changed.

With a HELOC, you’re borrowing against the available equity in your home and the house is used as collateral for the line of credit. As you repay your outstanding balance, the amount of available credit is replenished – much like a credit card.

This means you can borrow against it again if you need to, and you can borrow as little or as much as you need throughout your draw period (typically 10 years) up to the credit limit you establish at closing. At the end of the draw period, the repayment period (typically 20 years) begins.

Finally

Refinancing a mortgage can be a wise financial move for many homeowners, especially if they need more than mortgage relief can provide, but not every refinance makes sense. Be sure to evaluate all your options before making a decision.