At some point, most homeowners start to consider refinancing their homes. Whether your end goal is to score a better interest rate, change the length of your loan, or receive a cash advance for the equity you’ve put into the property, refinancing can do a lot to help ease the financial burden of homeownership. But, refinancing your home does come at a cost of its own.
If you’ve been wondering whether refinancing is a viable option for you right now, we’ve laid out some of the most common costs associated with refinancing your home:
What should I expect to pay when refinancing?
When you refinance, you’ll be expected to pay closing costs on the loan -- the fees needed to close out your old mortgage and begin your new one. They'll vary depending on where you live and the company you choose, so be sure to do your research before signing on the dotted line.
However, in general, this is what you can expect to pay:
Loan application fee
Just like when you applied for your first mortgage, you’ll need to pay an application fee. This isn't the case when applying for a startup business loan, for example, but it is standard for the mortgage industry.This covers any costs associated with vetting your finances, such as checking your credit score, to see if meet the lender’s criteria to be given a loan. It’s worth noting that, even if your application is denied, you’ll still be on the hook for this fee. $75 - $300
Loan origination fee
This is the cost charged by the lender in order to prepare your new mortgage. Usually, the fee is charged as a percentage of the loan rather than a flat dollar amount. 0% - 1.5% of the loan’s principal value
A point is equal to 1% of your loan's principle value. Some lenders charge a certain amount of points for making changes to the loan’s original terms, such as reducing the interest rate or paying it off early. 0% - 3% of the loan’s principal value
Sometimes, a lender will require you to have a home inspection to ensure that the property is structurally sound and all its systems are in working order. Depending on the regulations where you live, you may be required to perform additional inspections as well. $200 - $400
The bank may require that you hire an appraiser to determine the current fair market value of your home. This may be higher or lower than when you originally bought. However, it will determine that size of the loan that the bank is willing to issue. Typically, they will only issue loans lesser than or equal to the fair market value. $300 - $400
Sometimes, a lender will require that you have survey conducted to verify that the boundaries of your property are properly recorded and that they aren’t being encroached upon by the neighbors. $150 - $300
In order to grant you a loan, most mortgage companies insist that their investment be protected in the event of an emergency, meaning that they may require you to get homeowners insurance. While you probably already have a policy in place, when refinancing, your lender may require that you get additional coverage, or if needed, supplemental policies for floods, etc. $0 - $1,000
Title search and insurance
If you live in a title state, you’ll need to hire a title company to search court records, prior deeds, and property records. Their job is to ensure that your home’s title has no liens or other encumbrances that will need to be paid off before you can recieve a new mortgage. $700 - $900
If you do not live in a title state, you’ll need to hire an attorney to conduct those searches on your behalf. $500 - $1,000
When you refinance, the changes to your mortgage have to be made a matter of public record. The fee charged to record this change is determined by your local municipality. $25 - $200
What's the total cost of refinancing?
Your total cost will vary widely depending on where you live and the terms of both your new and original loans. However, on average, a homeowner can expect to pay anywhere from $1,800 - $5,000 to refinance their home.
If this figure is going to be an issue for you, negotiating with your lender is possible. He or she may be able to cover some of the costs and/or work with you to find a new loan program that better suits your needs.
What is no-cost refinancing?
“No-cost refinancing” is a bit of a misnomer. This process refers to how the fees are charged, rather than the overall cost itself. In a traditional refinancing scenario, the homeowner is expected to pay the above closing costs upfront. With no-cost refinancing, these fees are added on top of the principal value of your new loan, allowing you to pay for them over time.
If you think this may be an option for you, be sure to shop around for lenders who specialize in this type of work. Also, be aware that the flexibility of this option may come at an added cost in the form of higher interest rates. You’ll need to do the math to decide which payment process is ultimately a better choice for you.