Refinancing your mortgage costs about as much (and sometimes more) as it cost to get your mortgage in the first place. According to the most recent report from the Consumer Financial Protection Bureau, homeowners pay an average of $7,329 in closing costs—about $650 more than for a mortgage. More than half of the closing costs came from optional discount points purchased to lower mortgage interest rates.[1]
I refinanced my home about 5 years ago, so I know firsthand how the process works and what you can do to lower your refinance costs. I’ll tell you more about what I paid to refinance, how refinancing costs break down, how to pay less, and how to know if the costs are worth the savings in the long run.
Average refinancing costs: what to expect and what I paid
Expect to pay 3-6% of your loan principal when refinancing. For example, on a $300,000 refinance, that means you’ll pay $9,000 to $18,000.[2] Freddie Mac’s refinancing calculator can help you estimate your costs.
Keep in mind your location could affect your total. Homeowners in New York and Florida, for instance, typically pay more than those in California or Utah to refinance a mortgage.[3]
When I refinanced my Florida home in 2021, I paid $11,095—about 6.1% of the $181,500 loan. High home insurance premiums and state taxes drove up my closing costs significantly.
What about no-cost refinancing?
You may see some lenders advertise no-cost refinancing, but free loans don’t exist. Lenders offset closing costs by charging higher interest rates and, in some cases, rolling fees into the loan balance. You might avoid upfront costs but end up paying more over the loan’s lifetime through higher monthly payments.
For example, on a $300,000 refinance with $9,000 in closing costs folded into the loan, a lender might raise your interest rate from 6% to 6.5%, raising your monthly payment by about $150 more than what it would be if you just paid the closing costs upfront. That totals to roughly $54,000 over 30 years, which is far more than just paying the costs upfront.
What’s included in refinance costs?
| Type of refinance fee | Average cost |
|---|---|
| Lender origination fee | 0.5% to 1% of total loan amount[4] |
| Appraisal fees | $314–$424[5] |
| Credit report | $40–$60[6] |
| Survey fees | $376–$769[7] |
| Title insurance and settlement services | $1,901[8] |
| Government recording fees | $265[9] |
| Discount points | 1% of the loan amount per point[10] |
Bill Egan, senior mortgage loan officer and co-founder of Babcock Mortgage, says one of the biggest surprise costs for his clients is the escrow reset. Depending on your closing date, you could pay thousands more upfront. For example, if property taxes are due a few months after closing, you might need to fund 11 months of taxes into escrow.
Ryan Meehan, a licensed property tax consultant in California and Texas and cofounder and CEO of TaxDrop, a property tax appeal platform, also sees clients surprised by escrow jumps. “The new lender runs a fresh escrow analysis and accounts for property tax increases. If you haven't checked your assessment recently, that reset can eliminate your expected savings.”
He advises filing a property tax protest alongside your refinance to keep escrow costs steady.
Refinance costs include lender fees, third-party fees, government fees and taxes, prepaid costs, and escrows. Here’s what falls under each category:[11]
My real-life example of how much it cost me to refinance
I didn’t pay a loan origination fee on my home refinance, nor a survey fee—since I used the same survey from when we bought the house. However, I did get a small lender credit, meaning my lender likely partially offset my closing costs by charging a slightly higher interest rate. Since my interest rate was still a dreamy 2.99%, I wasn’t complaining.
Like I said earlier, my total closing costs from refinancing came to $11,095. Of that amount, $2,712 were loan costs. I didn’t pay any origination fees or points, but I did pay $726 for services I couldn’t shop for (like the appraisal and credit report) and $1,986 for services I could shop for, mostly title-related fees.
The remaining $8,688 were other costs, which included:
- $1,897 in taxes and government fees (mainly transfer taxes)
- $4,859 in prepaid items, including a year of homeowner’s insurance and prepaid interest
- $1,932 for my initial escrow deposit at closing
I received a $305 lender credit, which reduced my total closing costs from $11,400 to $11,095. In total, I needed to bring $11,063 in cash to close, and $32 of the closing costs were financed into my loan amount, bringing my new loan to $181,500
Is refinancing worth the cost?
To know if refinancing is worth the cost, first think about how long it’ll take you to break even and how much you’ll save overall compared to your original loan. Freddie Mac’s refinance calculator can help with the math. You can also ask your loan officer to run this math for you.
Then consider whether you’ll stay in your home past the break-even point. “If you keep the loan beyond the break-even point, refinancing makes sense. If not, it should be structured differently or avoided,” advises Egan.
Keep in mind that plans can change unexpectedly. COVID proved that, but smaller life circumstances can also prompt an earlier move.
For example, when we refinanced, our break-even point was about 4 years, going off the monthly mortgage payment savings. But after having a baby, our home and its location no longer suited our family. We moved 2.5 years after refinancing, making it a financial loss overall for us.
3 ways to pay for refinance costs
The most common approaches to pay for refinancing are paying cash upfront, rolling costs into the loan, and taking lender credits.
Here’s how each option compares:
Paying cash upfront
Pros
- Usually gets you the lowest possible interest rate
- Smaller loan balance in the long run
- Generally the best option for max long-term savings
Cons
- Requires liquid cash
- Reduces emergency reserves
Rolling costs into the loan
Pros
- Minimal out-of-pocket cost
- Preserves savings funds
- Usually makes refinancing more affordable in the short term
Cons
- Potentially higher mortgage payment
- Potentially higher long-term loan costs
Taking a lender credit
Pros
- Usually a lower upfront payment
- Possibly faster break-even point
- Tends to lower your total cost if selling soon (higher interest rates have less impact in the short term)
Cons
- Potentially higher lifetime interest cost
- Potentially higher mortgage payment
How to lower your refinance costs
Improving your financial profile, negotiating fees, and comparing lenders can lower refinancing costs. Egan also recommends doing the following:
- Experimenting with loan terms: Sometimes a 25-year loan prices better than a 30-year term.
- Verifying your occupancy classification: Primary homes get lower rates than second homes or investment properties.
- Timing your rate lock strategically: Experienced loan officers who track market trends can help you lock in at the optimal moment.
When it comes to credit scores, Egan notes that raising your credit score by just 20 to 40 points can reduce your interest rate by up to 0.375% if it moves you into a higher credit tier.
Why refinance costs vary between lenders
On your loan estimate, you’ll notice there are services you can and can’t shop for—all of which vary by lender. That’s why it’s essential to get at least two quotes. Here’s an example from the Consumer Financial Protection Bureau of what a loan estimate will look like.
In my experience, one of my loan quotes had much higher fees than the lender I ultimately chose, including the appraisal fee, recording fees, and transfer taxes.
The most important number when comparing loans is the annual percentage rate (APR). You’ll find it on page three of any loan estimate under “Comparisons.” If you don’t have a loan estimate, you’ll need to ask your lender for this document. APR represents your loan’s true cost, including closing costs. Lower APRs are better.
Ready to explore all your refinance options?
Refinancing costs money upfront, but you’ll likely come out ahead in the long run when you do it right. The monthly mortgage payment savings can also meaningfully improve your finances in the short term.
If you have questions about refinancing or want to explore how it could save you money, start by getting a quote from Best Interest Financial. We always run the numbers in every way we can think of to make sure we’re creating the absolute best refinance option for you. We’ll also be upfront about tradeoffs and benefits so you’ll know exactly what you’re getting.
FAQ about the cost of refinancing
How much does it cost to refinance a $400,000 home?
Expect to pay between $12,000 to $24,000 to refinance a $400,000 mortgage (3-6% of the loan amount).
What disqualifies you from refinancing?
Low credit scores, high debt-to-income ratios, and less than 20% home equity commonly disqualify borrowers from refinancing. Moreover, Egan stresses notifying your loan officer before taking any action that could affect your financial profile—such as co-signing a loan, changing jobs, or disputing credit items during underwriting. Changes can disqualify you from refinancing.
Does refinancing hurt your credit?
Yes, refinancing hurts your credit but the impact is typically small and temporary. Your score rebounds when you maintain good financial habits, such as paying bills on time and keeping credit utilization low.
What credit score is needed to refinance?
Lenders typically require credit scores of at least 620 to refinance, but some may accept lower scores for FHA, VA, and other government-backed loans. Generally, the higher your credit score, the better your interest rates.