What Are the Costs and Fees of Refinancing?
Refinancing fees can add up to as much as three to six percent of your remaining principal. You might also face prepayment penalties on your current loan, as well as similar costs associated with paying off your current mortgage.
Note that refinancing fees will vary based on the lender and the state in which you live. There are several types of fees that are commonly paid by homeowners when they refinance. These include:
Application Fee. Lenders will charge you just to apply for a loan. This fee is used to cover the cost of processing and checking your loan request and credit card. Note that this fee may be required even if your loan is ultimately denied. An application fee can range from $75 to $300.
Loan Origination Fee. The lender or mortgage broker charges this fee to cover the cost of evaluating and preparing your mortgage loan. Note that this fee is sometimes paid by the lender, but not always. Be careful when searching for refinancing options to figure out what fees you might be responsible for paying with respect to your broker or direct lender. This fee can be up to 1.5% of the new loan's principal.
Points. Each point is generally the equivalent of 1% of your mortgage loan principal. Some lenders will charge you for loan-discount points, which will reduce your interest rates but increase the size of your loan. You might also be charged points to earn money on the loan. Points are not always an obvious cost associated with a mortgage, so you should carefully determine what points you will be charged over the course of the new loan and how they will affect the total cost, especially relative to your current loan.
Use the timeline for repaying your new loan to determine whether it is worthwhile to pay points upfront to reduce your interest rate. If your loan is to be repaid over a longer period of time, these points might be worth paying, though this is not always the case. Note that points paid to refinance a loan are not always completely tax deductible. Consult the IRS or your financial advisor to determine how many points you can deduct on your tax returns.
Appraisal Fee. Lenders commonly charge this fee to pay to appraise the value of your home. In particular, lenders want to ensure that the property is worth more than the amount of the loan itself. The appraisal fee may be included as a part of the application fee, or this fee could be separate. You can also get a copy of the appraisal for your own records, in which case you may not be required to get a new appraisal when refinancing. If too much time has passed, you will still be required to get a new appraisal. Appraisal fees can be between $300 and $700.
Inspection Fee. Some lenders require inspections in addition to appraisals. Inspections are used to check for termites, structural issues, and other negative conditions. These inspections are conducted by engineers, consultants, or other professionals. Lenders also commonly check the septic and water systems on the property and make other checks as required by state law. The inspection fees can range from $175 to $350.
Closing Fee. Lenders will often charge you, the borrower, for the fees paid to the attorney or firm that conducts the closing process on behalf of the lender. These costs can range from $500 to $1000.
Homeowner's Insurance. Many lenders require that you carry homeowner's insurance in order to obtain refinancing. These policies usually have certain minimum terms and must protect against damage from fire, weather, vandalism, and other sources. Lenders want to be sure you have a homeowner’s insurance policy in place to protect the value of the loan even if your house is damaged. When refinancing, you should only have to show that you have a current homeowner’s policy. The cost of this policy can run from $300 to $1,000.
FHA or VA Fees / PMI. If your new loans are insured by federal housing programs such as the FHA or VA, you may be required to pay related fees. Loans insured by the Federal Housing Administration (FHA) and loans guaranteed by the Department of Veterans Affairs (VA), as well as conventional loans insured by private mortgage insurance (PMI), add associated fees. Usually, if you are borrowing an amount that is greater than 80% of the value of the property, these associated fees will apply. The purpose of PMI and these government agencies' subsidies is to protect the lender against you defaulting on the loan. The FHA fees amount to 1.5% plus 0.5% per year, while VA ranges from 1.25% to 2% of the principal. PMI generally costs 0.5% to 1.5%.
Title Search and Title Insurance. Lenders charge this fee to cover the cost of searching property records and titles to confirm that you are the rightful owner of the property to be mortgaged and to confirm the existing liens on the property. Title insurance protects the lender against any errors in the results of a title search. These fees range from $700 to $900.
If you have a current title insurance policy, you can ask the company to reissue the policy for a new loan. Reissuing may reduce the cost of title insurance.
Survey Fee. Similar to inspection and appraisal, lenders usually survey the land to confirm the locations of buildings and any other improvements on the property. This survey may not be required if a survey has been conducted recently for your property. If it is required, you may be responsible for survey fees ranging from $150 to $400.
Prepayment Penalty. If you pay off your mortgage early by obtaining a new loan and refinancing, some lenders will charge you an extra fee for paying off the loan ahead of schedule. This fee is prohibited in some states and for most loans backed by federal agencies. Credit unions also will generally not charge prepayment penalties. These penalties range from the cost of one to six months' interest payments.
- What Does It Mean to Refinance a Mortgage?
- How Does My Credit Score Affect Refinancing?
- Is Refinancing Available for FHA, VA, Jumbo, or USDA Loans?
- How Much Equity Do I Need to Have Before Refinancing?
- How Do I Refinance My Mortgage?
- How Do I Know If I Am Eligible to Refinance My Mortgage?
- What Are Some of the Benefits of Refinancing?
- When Should I Refinance My Mortgage?
- What Are the Disadvantages of Mortgage Refinancing through a Third-Party Mortgage Broker?
- Will Refinancing Lower My PMI?
- Should I Refinance If I Only Plan on Living in My Home for a Few More Years?