How Much Does It Cost to Refinance a Mortgage?
Average Refinance Closing Costs, “No Cost” Refinancing, and More
Almost every home refinance incurs closing costs, which can average between 2% and 6% of the loan amount, according to Forbes. Factors such as your chosen lender, the type of mortgage, and your personal finances can significantly affect the closing costs you may face when refinancing.
What’s Included in Refinance Closing Costs?
Closing costs can vary for different homeowners based on factors like property location, loan type, and loan amount. Some common closing costs associated with refinancing a mortgage include:
- Lender Fees: These fees may be charged by lenders to process your refinance application, sometimes referred to as "application fees" or "origination fees." The specific amount can vary between lenders.
- Mortgage Discount Points: Some lenders may charge you fees known as discount points to secure a lower interest rate. One mortgage discount point is equal to 1% of the loan amount. You can often opt to pay discount points for a lower interest rate.
- Mortgage Insurance: If refinancing with a conventional loan and your home equity is less than 20%, you will typically need to pay for private mortgage insurance (PMI). For FHA loans, an upfront mortgage insurance premium (MIP) is usually required, along with a monthly MIP.
- Homeowners Insurance and Property Taxes: Hazard insurance premiums and property taxes may also be included in your closing costs.
To gauge how much you'll pay in closing costs, compare the APR (annual percentage rate) to the interest rate. The APR encompasses many costs associated with refinancing. A significant difference between the interest rate and APR can indicate substantial closing costs.
Can You Get a "No Closing Cost" Refinance?
Refinancing a mortgage without paying closing costs is indeed possible. However, it’s important to note that this doesn’t mean your lender is covering the costs. Instead, lenders might finance your closing costs in exchange for a higher interest rate, effectively integrating those costs into your monthly payments over the life of the loan.
Lenders may also offer refinancing options with no “out-of-pocket” closing costs. In such cases, you won't pay the closing costs at settlement; instead, they will be added to your loan amount. For example, if you refinance a $200,000 mortgage with $8,000 in closing costs, your new mortgage amount would be $208,000, with the costs paid off over time through your monthly principal and interest payment.
How Much Does It Cost to Refinance a Conventional Loan?
Refinancing a conventional loan can cost between 2% and 6% of the loan amount. These refinances often have higher credit and financial requirements than other mortgage types. However, if you have a good credit score and sound personal finances, you can secure competitive interest rates. You can also avoid mortgage insurance if you have enough home equity. Furthermore, any type of mortgage can be refinanced with a conventional loan. Learn more about these mortgage refinances.
How Much Does It Cost to Refinance an FHA Loan?
According to The Mortgage Reports, refinancing an FHA loan can cost between 2% and 5% of the loan amount. FHA loans also offer a streamline program, making refinancing easier compared to conventional loans. When refinancing an FHA loan, you will likely need to pay an upfront mortgage insurance premium equal to 1.75% of the loan amount. This premium can often be financed into your mortgage, eliminating the need for an out-of-pocket payment. Learn more about FHA streamline refinances.