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According to data from financial technology company ClosingCorp, the average mortgage refinance settlement cost in the U.S. in 2021 was $2,375 before taxes. According to the Federal Reserve, typical settlement costs are about 3% to 6% of the mortgage principal. Refinance costs vary depending on where you live, the value of your home, and the requirements of your new and old lenders.
If mortgage interest rates are lower than when you first took out your loan, refinancing your mortgage can help you save money on your monthly mortgage payments. You may even be able to lower your interest rate or extend the term of your mortgage by a few years.
But the refinancing process can be costly. Refinancing is basically replacing your old mortgage with a new one, which usually means paying closing costs again.
How much will it cost to refinance?
When you refinance, your settlement costs may be a little lower than what you paid on your original loan. According to data from ClosingCorp, the average settlement cost for a mortgage refinance in 2021 was $2,375, excluding recording taxes and other special taxes. ClosingCorp did not disclose the national average refinance settlement costs and taxes for 2021.
In comparison, the average pre-tax closing costs for buying a home in 2021 were $3,860, meaning borrowers who refinance will end up paying a bit less on their mortgage than borrowers buying a new home.
Check out our insider's top picks for the best lenders for mortgage refinancing >>
Average settlement costs by state
One big factor that will affect how much you pay when refinancing your home is where you live. Because closing costs involve taxes and the value of your home, the location of your home will have a big impact on your closing costs.
The amount you'll pay at closing will vary depending on what state you live in, according to data from ClosingCorp. Here are the average refinance closing costs in each state for 2021.
Some states have higher closing costs than others: For example, in New York, where both property values and taxes are high, the average refinance closing cost is over $10,000, while in Missouri, where both property taxes and values are relatively low, the average closing cost is $1,405.
Metro areas and counties with the highest refinance closing costs
CoreLogic also reported the housing markets across the nation with the highest average settlement costs before taxes.
Most expensive metropolitan areas
Most expensive counties
Typical refinance closing costs
There isn't just one fee for refinancing closing costs. There are several costs that make up your closing costs. Much of the money you pay at closing goes towards your mortgage lender's fees and services used in the loan underwriting and closing process. A portion of the cost may also go towards taxes.
Below is a list of fees you may incur in the refinancing process, along with an estimate of what each fee will cost based on data from the Federal Reserve.
tax:
You may owe property taxes when you close on a refinance. The cost will vary depending on where you live and the value of your home. According to Bank of America, you'll typically owe six months' worth of property taxes when you close on a refinance.
Application fee:
There is a fee to apply for another mortgage, and this fee is usually non-refundable.
Loan Fee:
Cost range: Up to 1.5% of the loan principal
Not all lenders charge this fee, but some do, and this fee can be a costly addition to your closing costs. For example, a 1.5% fee on a mortgage balance of $200,000 would add $3,000 to your closing costs.
Appraisal fee:
Cost range: $300-$700 depending on need.
If your home hasn't been appraised recently, you may be required to pay an appraisal fee. This process involves a licensed appraiser evaluating your home and determining its fair market value.
Title Search and Insurance:
Lenders will look at the title to the home to make sure you are the owner and will check any liens you have against the home. Title insurance protects the lender if there is an error on the title that puts the lender's investment at risk.
Investigation fee:
Cost range: $150-$400 depending on your needs.
If the home hasn't been inspected recently, the lender may request a survey, which is basically to verify that the home and all of its structures are where they are stated on the certificate of title.
Attorney review and settlement fees:
Cost range: $500 to $1,000
The company or lawyer who performs the settlement on your home will need to be paid a fee for their work, which will be part of your settlement costs.
Prepayment Penalty:
Costs range from one to six months' interest payments, if applicable.
Some lenders will charge a mortgage prepayment penalty for loans that are paid off sooner than scheduled. Since refinancing your mortgage means you're essentially paying off your old loan before the scheduled payment date, your old lender may charge you a prepayment penalty.
Not all loans have prepayment penalties, so be sure to ask your lender if your current mortgage has a prepayment penalty and, if so, how much it is.
How to reduce refinancing costs
Ways to reduce your mortgage refinancing costs include:
Negotiate
While some costs are non-negotiable with lenders, such as appraisal fees, others may be open to negotiation. This includes application fees and loan processing fees.
Ask your refinance lender if you can afford these costs.
Look around
For certain closing costs, such as title search fees, you can choose a service provider instead of the one the lender chooses by default. The services you can choose are listed in the Loan Estimate. Examples are available on the Consumer Financial Protection Bureau's website.
Fee-free refinancing
It's also possible to refinance without paying any upfront fees. Instead, you pay the fees over the life of the loan.
According to the Consumer Financial Protection Bureau, lenders cover closing costs in two ways: Some lenders charge higher mortgage refinance rates to borrowers who opt for a loan with no closing costs. Other lenders add the closing costs to the principal of the loan, increasing the total amount the borrower pays and the total amount of interest.
Closing costs may seem high, but they are generally cheaper if you pay them up front, even if you're paying them a second time when refinancing.
Frequently asked questions about average refinance closing costs
What's considered “reasonable” will depend on where you live and the amount you're borrowing. Closing costs for refinancing are typically between 3% and 6% of the loan amount. Compare fees between multiple lenders to see which lender is offering the best terms.
While a no-closing-cost refinance is possible, you still can't technically avoid closing costs — instead, you'll either be charged a higher interest rate or have the closing costs rolled into your loan amount.
You may be able to negotiate certain closing costs, such as origination fees and application fees, that are charged directly by the lending institution. However, closing costs also include third-party fees that you probably can't reduce, such as appraisal fees.
To avoid paying closing costs up front, some borrowers choose to add them to the loan amount. Keep in mind, though, that if you do this, you'll end up paying interest on those costs and paying more in the long run.
Liz Knoeven
Personal Finance Reporter
Molly Grace
Mortgage Reporter
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