How Do I Figure the Cost to Refinance a Mortgage?

Jeremy Laukkonen
Jeremy Laukkonen
Woman with hand on her hip
Woman with hand on her hip

The only way to determine the exact cost to refinance a mortgage is to inquire with various lenders and get the numbers in writing. There are a number of different potential costs involved, many of which can vary from lender to lender. It is common for your total cost to refinance a mortgage to be about three to six percent of the amount you currently owe, but some lenders will charge more than others. Common items that can contribute to the overall cost to refinance a mortgage include an application fee, loan origination fee, points, and closing costs. Depending on your mortgage terms you may be responsible for prepayment penalties, and you typically must pay for an appraisal, survey, and title insurance.

Some lenders advertise zero cost to refinance a mortgage, but this can actually mean a number of different things. In some cases your lender may offer to pay all of your closing costs, but in exchange you will be assessed a higher interest rate over the lifetime of the loan. Other situations can involve the closing costs being rolled into the loan balance, in which case you will end up paying interest on that amount. Each of these possibilities can contribute to the cost to refinance a mortgage over time, so they should be considered before choosing one of these no cost options.

If you plan on refinancing through a traditional lender and paying the costs out of pocket, you may want to check with several banks and mortgage companies before choosing one. Some of the costs associated with refinancing are relatively fixed based on your area, such as the appraisal and survey. Other factors, such as application fees, origination fees, and points, can vary widely. Mortgage brokers tend to be more likely to charge fees such as these, since that is how they typically make their money. Banks that hold on to their loans may be more likely to lower these amounts, since they can make money over the lifetime of the loan.

In order to determine a general range of how much it will cost you to refinance, you can use an online calculator. These online services will typically allow you to enter your loan balance, current interest rate, and desired new rate. Some of the calculators will provide you with a range of how much it might cost to refinance, with upper and lower limits depending on lender specific figures. Other calculators require that you already have that information, and they use it to show you how many months it would take before reach a break even point.

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