What Are Closing Costs To Refinance A Mortgage

Should You Pay Refinance Closing Costs Out Of Pocket

Take a close look at your financial situation when deciding the best way to pay your refinance closing costs.

If you have sufficient home equity, it might be worthwhile to add your refinance closing costs to your mortgage balance to avoid an out-of-pocket expense.

This also makes sense when you dont have much money saved, or if you dont want to deplete your personal savings when refinancing.

However, rolling closing costs into your loan increases the loan balance, your monthly mortgage payment, and your total interest charges. So if you can spare the cash, it might be better to pay your closing costs out-of-pocket and be done with it.

Always Compare Closing Costs And Refinance Rates From Multiple Lenders

You should always get multiple mortgage quotes from at least three lenders, including your current mortgage company. Then compare your Loan Estimates to find the lowest-cost option.

Comparing upfront fees and interest rates can help you save money. And if you find a lender with a cheaper loan origination fee, application fee, or underwriting fee, this sways the negotiating power in your favor.

You can refinance with the lender offering the lowest rate and fees at face value. Or you can use your other offers as leverage for negotiation.

Your current lender might match the competitors fees or waive certain refinance costs to keep you as a customer.

Can You Negotiate Closing Costs When Refinancing

The good news is that some refinance closing costs are negotiable, especially lender fees charged directly by your mortgage company.

You can often negotiate the following refinance costs:

• Loan application fees
• Underwriting fees
• Homeowners insurance premiums
• Title insurance

However, there are some non-negotiable expenses, too. Your loan officer likely wont be able to lower fees charged by third parties such as the survey, home appraisal, or recording fees. Lenders simply pass these fees along to you, the borrower.

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Shop For Lenders With Low Fees

Before you decide on a lender, shop around for the best deal. Many of the fees lenders charge are negotiable. Ask each lender for a breakdown of how much they charge in origination fees. You may even want to ask them to break out their bundled origination fees into individual line items. Then compare lenders and negotiate to see which items can be omitted or reduced. A good place to start is with document prep or courier fees.

Owners Policy Title Insurance

Typically optional for buyers, owners title insurance protects you from future claims against the title. The seller typically pays for the owners policy, but this needs to be negotiated and detailed in the purchase and sale contract. Owners title insurance policies range from $500 to $3,500 depending on the location and size of the property.

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Average Closing Costs For Refinance

The closing costs for refinancing are similar to the closing costs for an original mortgage. Youâll have to pay appraisal and loan origination fees, as well as fees for the application, title search, underwriting and other lender costs.

In most cases, these fees total at least 2% of your loan amount and often up to 5% or more. Those costs can make many homeowners hesitate before refinancing, especially in an uncertain economy. Thatâs why a no-closing-cost refinance can be tempting.

Dukes recommends shopping around, as some lenders offer more in lender credit for the same increase in rate. Others may have lower lender fees, so the closing costs added to your mortgageâalso known as a lender creditâwould be lower.

Appraisal Survey And Inspection

Your lender may require a careful evaluation of your property. It wants to know it’s valued highly enough to offer sufficient collateral on the loan. This can include:

• An appraisal, which costs between $250 and $700. A professional will compare your home to others on the market to determine its value.
• A survey, which can cost between $150 to $500. It’s designed to determine the boundary lines of your property and see whether there are any easements. An easement is where someone else has certain rights to use your property.
• An inspection, which costs between $175 and $500. This will ensure there are no major structural problems with your property,

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The Cost Of Refinancing A Mortgage

The cost to refinance a mortgage can vary according to the interest rate, credit score, lender and loan amount. Homeowners who can make lenders compete for their business are more likely to obtain a better mortgage refinance deal.

The closing costs of a home refinance generally include credit fees, appraisal fees, points , insurance and taxes, escrow and title fees, and lender fees. If there is enough equity in the property at the time of refinancing, the owner may choose to finance their closing costs and fees by adding them to their current mortgage balance & they may also choose to cash out some of their saved equity. If the buyer prefers to lower the loan balance, cash may also be used to cover expenses at closing.

Homeowners with a no-cost mortgage can avoid additional fees to their current mortgage balance, or having to pay closing costs in cash, by simply taking a higher interest rate. All one-time closing costs on a mortgage can be covered by the mortgage originator, which utilizes their rebate from the lending institution who funds the mortgage.

Here is a rate table highlighting current refi rates in your area.

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Average Cost Of A Mortgage Refinance

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

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 homeowners 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.

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.

Average Closing Costs When Refinancing

Your closing costs will vary depending on your loan balance, the type of refinance, and even where you live. But you should expect the fees to run from 2% to 5% of your loan amount.

In 2020, the average mortgage loan balance increased to roughly $208,000. So a typical refinance would have fees in the range of $4,000 to $10,000. The specific fees you pay, and what theyre called, will vary by state, but the most common fees are:

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Fannie And Freddies Streamline

Savings may be smaller but still worthwhile if you have an existing mortgage with either Fannie Mae or Freddie Mac. They both have refinancing products that permit simplified documentation as well as allowing you to refinance a large proportion of your homes market value.

But, again, these arent available if you need a cash-out refinance. And, for these, you must stay with Fannie or Freddie while being free to switch to a different lender.

Closing costs will vary dramatically depending on the specifics of your refinance.

Here are the fees and costs that those refinancing commonly incur:

• Origination or underwriting fee. 0-1% of the loan amount. What the lender charges for setting up the loan.
• Discount points. 0-2% of the loan amount. These are optional and allow you to purchase a lower mortgage rate. People who plan to keep their loan forever may choose to pay more money upfront to get a super low rate.
• Application fee. $300-500. These are rarer nowadays but you may still find them.
• Appraisal fee. Probably $400-$1,000 for an average property. Appraisal fees can be much more depending on the size and location of your property.
• The cost of pulling your credit report.
• Flood determination fee. $20. This evaluates the likelihood that your property is susceptible to flooding.
• Flood monitoring fee. $40. This pays for continuing checks on flood-map updates.
• Tax monitoringand tax status research fees. $150-$225. This makes sure you stay current with property taxes.

Ways To Reduce Your Refinance Closing Costs

There are a number of factors that affect the costs a lender charges for the refinance rate they offer, and knowing how they impact your refinance expenses can help you reduce your refinance closing costs.

Here are nine refinance cost-cutting tips:

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Whats Included In Closing Costs

When you first see your Good Faith Estimate or Closing Disclosure Statement, it can be a little overwhelming the list of individual line items seems to stretch on and on. Heres a list of the most common closing costs in alphabetical order, including the general amount of the charge and purpose for the cost.

What Are Refinance Closing Costs

Closing costs are lender fees and third-party fees you pay when getting a mortgage. You have to pay these on a refinance just like you did on your original mortgage.

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

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How To Negotiate A Reduction In Lender Fees

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 arent 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 youll pay on average can also help when youre shopping around. The origination fee is typically between 0.5% and 1% of the loan amount. 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.

Lenders are able to charge you a maximum loan origination fee of 2% of the loan amount.

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 thats only a suggestion. The one area where you wont be able to negotiate a lower price is the appraisal, because the lender orders that one for you.

How Much Are Refinance Closing Costs

Average closing costs total $5,000, according to Freddie Mac. But yours may be much higher or much lower.

Typically, refinancing closing costs run between 2% and 6% of the total loan value. Bear in mind that some of the best refinancing lenders don’t charge origination fees, which could lower your costs. On the other hand, closing costs could be higher if you decide to pay for extra discount points to buy down your interest rate. Or if you choose a mortgage lender that charges a high application fee.

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How To Get The Best Refi Rate

Refinance rates are influenced by your personal finances. If you have a higher credit score and better loan-to-value ratios will generally qualify for a bigger discount on their refinance rate.

Your personal finances arent the only thing that will impact the refinance rate you qualify for. A better loan-to-value ratio can help you get a lower refinance rate. So the more equity youve built up, the better. Having at least 20% equity in your property is ideal.

The type of mortgage loan has an affect on what your refinance rate will be. A shorter-term refinance loan generally has better refinance rates than a longer-term loan. Also, if you want to turn your equity into cash with a cash-out refinance, you should expect to pay a higher mortgage rate for that privilege.

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Advantages And Disadvantages Of Include Closing Expenses In A Mortgage

When closing fees are included in the mortgage, the borrower pays less out of pocket and retains more cash. This is a strong justification for including closing charges.

However, you also pay interest on these expenses during the loans lifetime.

For example, lets assume:

• Your new mortgage closing charges total $5,000.
• A 30-year period has an interest rate of 3.5 percent.

If the closing fees are added to the loan balance:

• Your mortgage payment would rise by $22.50 each month.
• And you would pay an additional $3,000 during the 30-year loan period, bringing the total cost of your $5,000 closing fees to $8,000.

The loan-to-value ratio increases by adding closing expenses to the new mortgage total. Increasing the LTV decreases the homeowners equity.

Less equity equals less profit when you sell your property since you will have a larger mortgage to pay off. If you took out a home equity loan, you would also have less equity.

The disadvantages of losing equity and paying more interest may be acceptable if the savings from your lower refinancing rate outweigh the borrowing costs.

Average Mortgage Refinance Closing Costs

When you refinance, you will pay closing costs, just as you did with your original mortgage loan. These include things like appraisal fees, recording costs, origination fees, title insurance and more. The costs of these can vary widely, but Freddie Mac estimates the average refinance costs around $5,000.

Some mortgage companies will advertise “no closing cost” refinances, but these really just roll your closing costs into your loan balance. Because your loan balance is then higher, it results in more long-term interest costs. Make sure you do your research in advance before filing any paperwork. There are online marketplaces that list out potential mortgage lenders that can help.

“A no-closing-cost refinance means you don’t have to pay fees at closing,” explains Matt Vernon, head of retail lending at Bank of America. “However, that doesn’t mean there are no added costs. Closing cost fees will instead be included in the loan, increasing the principal balance, or you’ll pay a higher interest rate. A higher interest rate adds up over time.”

If you refinance too quickly after you buy a home, you may also owe a prepayment fee to your lender. These penalize borrowers who pay off their loans too early . The exact costs vary widely, but you can pay around 2% of your loan balance or six to 12 months of interest charges.

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