The Average Cost to Refinance

The costs and fees for mortgage refinancing vary depending on options and location, typically ranging from 2% to 6% of the total loan value.

From taking advantage of a lower monthly payment to ditching your FHA mortgage insurance, there are plenty of reasons why you might want to refinance.

But how much should you expect to pay? Let’s take a look at the average cost of a refinance and what you might expect to pay for each of your closing costs.

Refinance Fees Explained

Just like when you get a home equity loan, you’ll need to pay a variety of costs at closing when you refinance a mortgage. The specific costs you’ll pay and fees you’ll face will vary depending on your mortgage refinance options and where you live. As a general rule, you can expect to pay 2% to 6% of the total value of your loan when you refinance.

Let’s take a look at some of the most common refinancing closing costs, the average cost of each item, and what each fee covers. 

Application Fee

Before you receive a decision on your refinance, your lender will bill you for the cost of processing your application. The application fee usually covers the cost of a credit check and an underwriting analysis of the financial information you submit with your refinance. Some of the best refinance mortgage companies have eliminated the application fee, but most lenders still charge them in some capacity.

Expect to pay about $200 for your refinance application fee if your lender charges one. Keep in mind that this fee is due even if you aren’t approved for a refinance, so make sure you meet your new lender’s criteria before you apply. 

Appraisal Fee

An appraisal is a professional estimation of the amount of money your home is worth. During an appraisal, a home value expert called an appraiser will take a walk around your home, do some outside research, and assign a value to your home.

Lenders require a new appraisal on most refinances. This is because they need to be sure that your home value hasn’t fallen since you bought your house. New appraisals are required on all forms of cash-out refinances.

Not every type of refinance requires an appraisal. If your lender requires you to get a new appraisal, you can expect to pay about $500 for this fee. 

Title Insurance and Search

Title insurance is a type of protection that safeguards both you and your lender from competing claims on the property you’re buying. During a title search, a title insurance company will research the history of the property to ensure that you don’t have any liens or claims on the property that will prevent the lender from seizing it if you default on your mortgage.

When you refinance with a new lender, you’ll usually need to pay for another title search and title insurance policy. The title search and insurance process typically cost a total of about $900. The good news is that, unlike other types of insurance, you don’t need to pay for title insurance every month — after you pay for it once at closing, you’re protected for as long as you have your loan. 

Loan Origination Fee

Your loan origination fee is typically the largest expense you’ll pay when you refinance your mortgage. The loan origination fee compensates your lender for drawing up the paperwork for your loan, calculating your interest rate and scheduling the inspections and appraisals you’ll need before you can close your refinance.

It's impossible to put an exact dollar estimate on the loan origination fee because most mortgage refinance lenders charge you a set percentage fee based on the value of your loan. As a general rule, expect to pay about 1% of the total value of your loan. For example, if you’re refinancing a $200,000 loan, you’ll typically pay around $2,000 in a loan origination fee.  

Attorney Fees

In some states, attorneys must review and approve loan paperwork before you can sign off on your refinance. They might need to review your loan agreement to make sure that it contains no illegal clauses and that your lender has correctly calculated your fees and interest rates. An attorney may also need to be present at the closing table to verify your mortgage refinance.

Attorneys’ fees can vary by state. Expect to pay about $700 in these fees if your refinance requires it. 

Why You Should Refinance Your Mortgage

Refinancing your mortgage can be a smart financial move for a variety of reasons. Here are some reasons why you should consider it.

Lower Interest Rates

Refinancing your mortgage allows you to take advantage of lower interest rates, which can significantly decrease your monthly mortgage payments. This can save you money over the long term and free up extra cash for other expenses or savings.

Shorten the Loan Term

If you initially obtained a 30-year mortgage but now have the means to pay off your loan sooner, refinancing to a shorter term, such as a 15-year mortgage, can help you become mortgage-free more quickly.

Access to Equity

If the market value of your home has appreciated or you have paid down a significant portion of your mortgage, refinancing can allow you to take out a cash-out refinance. This means that you can refinance for a higher loan amount than your remaining mortgage balance and receive the difference in cash.

How to Lower Your Refinance Costs

There are ways you can effectively lower your refinance rates and potentially save thousands of dollars over the life of your loan. By following these tips and techniques, you'll be able to navigate the refinancing process with ease and secure the best possible rates for your financial situation. 

Improve Your Credit Score

Lenders typically offer lower refinance rates to borrowers with higher credit scores. Paying off outstanding credit card debt, making payments on time, and keeping your credit utilization low can all help improve your credit score and potentially qualify you for a lower refinance rate.

Shop Around and Compare Offers

Different lenders may offer different refinance rates, so it's essential to shop around and compare offers from multiple lenders. This allows you to find the best refinance rate and terms that suit your financial needs.

Make a Larger Down Payment

Putting down a larger down payment when refinancing can help reduce your loan-to-value ratio (LTV). A lower LTV generally leads to lower refinance rates and may even eliminate the need for private mortgage insurance (PMI) if you have at least 20% equity in your home.

Pay Points Upfront

Paying points upfront is an option to lower your refinance rate. Each point is equal to 1% of the loan amount and paying points upfront means paying more upfront to reduce your interest rate over the life of the loan. This can be beneficial if you plan to stay in your home for a long time.

Consider an Adjustable-Rate Mortgage (ARM)

If you plan to sell your home or refinance again in a few years, an adjustable-rate mortgage (ARM) may offer a lower initial interest rate compared to a fixed-rate mortgage. However, it's important to carefully consider the terms and potential future rate adjustments.

Compare the Best Mortgage Lenders for Refinancing

Now that you understand how much it costs to refinance, let’s take a look at some of the best places to refinance a mortgage loan.  

Refinance the Right Way

Are you getting ready to refinance? The best way to lower your costs is to know and understand all of your loan options. Research a few different lenders and negotiate closing costs with your pick. You might be surprised at just how much leeway your lender might be able to extend to you when it comes to cost.  

Get started now with one of our recommended mortgage refinance lenders.

Frequently Asked Questions

¹Based on Quicken Loans data in comparison to public data records.