First up: What are closing costs for a refinance?

Refinancing a mortgage takes time and has a few moving parts and help from several different people. Closing costs cover the expense of the process, and generally include fees for:

• Application, origination and/or underwriting

• Appraisal, home inspection and/or property survey

• Title search

• Title insurance

• Property recording

• Transfer taxes, if applicable

• Prepaids, like interest, homeowners insurance or property taxes

• Discount points to lower your interest rate, if applicable

You can typically pay closing costs upfront at closing time, or roll them into your refinance if you want to work them into your regular monthly payments instead of paying in a lump sum.

How much can you expect to pay?

Closing costs for a refinance can vary by a lot, but they typically average between 2 and 5 percent of the balance of the loan. So, if you have a balance of $200,000 left on your mortgage, you can expect to pay between $4,000 and $10,000 in closing costs. 

These costs can change, though, depending on a few different factors. Things like an appraisal, purchasing discount points, application fees and more can add to or subtract from your closing costs.

How to avoid paying closing costs upfront

Technically there's no true cost-free refinance, but there are two options you can explore to avoid paying the costs in cash upfront.

Roll in closing costs - When you refinance, you may be able to include your closing costs as a part of your total loan amount. That way, your balance will increase but you won't have to pay any cash at closing. This can be helpful if you're short on savings or if you don't plan to live in the house for more than a few years. 

Take a higher interest rate - Another option is to get funds for your closing costs by taking a slightly higher interest rate. Your loan officer will be able to talk you through this option and help you see if it might make sense for you.

If you lack funds for closing costs, either of these options could be tempting, but keep in mind that with these options you'll pay more over the life of your loan compared to paying them out-of-pocket because you'll end up paying interest on your closing costs. In some cases, it may make sense though, so be sure to ask your loan officer to help you decide which option is right for you.

Other tips to keep in mind

When thinking about closing costs, there are some other factors you might want to consider.

• Compare loans to see which is best for you: While closing costs may seem like a roadblock to refinancing, there are options out there. We can help you compare loan offers so you get the best possible rate at the lowest cost.

• Shop around: You may be able to save money by shopping around for some of the services required for your refinance. Your loan officer will tell you which services you can shop around for (like property surveying) and which ones you can't (like appraisal or credit check). 

• Ask for an end-of-the-month closing date: This can help lower the amount of prepaid interest you'll have to pay, which in turn will lower your closing costs.

• Ask about deals: Talk to your loan officer and see if there are any options for rebates or discounts. Though it's not guaranteed, they may be able to help you find an option that works for you and your budget.

Next steps

Closing costs are just one small part of a refinance, and often the savings you'll get from refinancing will help to offset them. If you qualify for a lower interest rate than what you’re currently paying, you can save a lot of money in the long run, and we can help you get started today. Start your application and your dedicated loan officer will reach out and help you through the whole process.

Click here to start your application!