What Are the Costs and Fees of Refinancing?

A refinance usually costs several thousand dollars. CFPB data show the median refinance in 2023 had $7,329 in total loan costs, which covers lender charges, third-party services such as the appraisal and title insurance, and any discount points. Property taxes, prepaid interest, and a new escrow deposit come on top of that, though your old servicer refunds your old escrow balance after payoff. You can lower the total by shopping for title and settlement services, accepting an appraisal waiver if one is offered, or taking a lender credit in exchange for a higher rate.

Where do refinance costs appear on the Loan Estimate?

Each lender you apply with sends a Loan Estimate. Page 2 groups every charge into lettered sections, and the Closing Disclosure you get before closing uses the same letters.

Your old servicer generally has 20 days after payoff, excluding Saturdays, Sundays, and legal public holidays, to return the escrow balance. Unless your servicer arranges an eligible transfer with your agreement, plan to fund the new escrow at closing before receiving that refund.

The government program fees can be large. FHA charges an upfront premium of 1.75% of the base loan amount on most refinances, so $5,250 on a $300,000 base loan. VA charges a funding fee of 0.5% on a rate reduction refinance (IRRRL) and 2.15% on a first-use cash-out refinance, and veterans who receive VA disability compensation pay none. These fees can usually be added to the loan instead of paid in cash.

What lender and origination fees include explains the charges in Section A.

Which refinance fees can you shop for or reduce?

1. Get Loan Estimates from at least two lenders on the same day. Rates change daily, so same-day estimates let you compare Section A and the rate side by side. Which closing costs are negotiable covers what to ask for.
2. Shop the title insurance and settlement agent. These are usually the largest Section C charges. Ask each title company for its refinance or reissue rate, which is a discount for insuring a loan on a home that already has a recent title policy. Title premiums are set under state rules, so the discount varies. Texas, for example, cuts the premium on the paid-off balance by 50% when the old loan policy is 4 years old or less and by 25% when it is more than 4 but less than 8 years old.
3. Ask whether you qualify for an appraisal waiver. Fannie Mae's underwriting system can make a "value acceptance" offer on some refinances, which lets the lender use an existing value estimate with no appraisal. The offer comes from the system, not from you, and the lender cannot use it if an appraisal is obtained for the transaction. FHA streamlined refinances, VA IRRRLs, and USDA Streamlined-Assist refinances do not require an appraisal at all.
4. Decide on points. Each point you buy costs 1% of the loan amount, lowers your rate, and shows up in Section A. Ask for quotes with and without points and compare the total cost over the years you expect to keep the loan.

How does a no-closing-cost refinance work?

The costs do not go away. The CFPB explains that a no-closing-cost refinance either charges a higher interest rate in exchange for a lender credit that covers your costs, or adds the costs to your loan balance.

Suppose a $300,000, 30-year refinance has $6,000 in closing costs:

The lender credit option costs more than paying upfront at payment 48: about $4,883 in extra payments plus $1,158 more owed exceeds the $6,000 credit. If you expect to sell or refinance before that four-year point, the credit can be the cheaper choice. The rates here are illustrations; the actual rate and credit come from each lender's pricing. Run your own numbers with the break-even method in when to refinance your mortgage.

Will your current loan charge a prepayment penalty?

Check before you apply, because a penalty on the old loan adds to the cost of the new one. For most mortgages made since January 2014, federal rules cap any permitted prepayment penalty at 2% of the balance you pay off in the first two years and 1% in the third year, and none can apply after three years. If your loan permits a penalty, the lender had to offer you an alternative loan without one. On a $250,000 payoff in year two, the most you could owe is $5,000.

Your loan note states whether the loan has a prepayment penalty, and your servicer's payoff statement will include any penalty owed.

Can you deduct refinance points and closing costs?

Points on a refinance are generally not deductible all in one year. IRS Publication 936 says eligible points are generally deducted evenly over the life of the new loan if you itemize deductions on Schedule A and meet mortgage-interest debt limits. Points tied to cash-out used for personal expenses do not qualify as home mortgage interest. Fees for services such as the appraisal, title insurance, and attorney are not deductible as interest.

Example. You pay $3,000 in deductible points on a 30-year refinance and itemize. You deduct $100 a year ($3,000 / 30). If you sell the home or pay off the loan after 5 years, you deduct the remaining $2,500 that year. If you refinance again with the same lender, you instead spread the $2,500 over the term of the newest loan.

One exception applies to cash-out refinances. If you use part of the new loan to substantially improve your main home, you can deduct the points tied to that part in the year you pay them, as long as you paid them with your own funds and meet Publication 936's tests for deducting points in the year paid. Routine maintenance alone does not qualify as a substantial improvement. How to calculate the mortgage tax deduction covers the interest side.

For how a refinance replaces your current loan, see what it means to refinance a mortgage.