Mortgage refinance costs money, although it won’t be as much as the closing costs you have to pay when buying a house.
While the closing costs––including down payment and other expenses related to the purchase of a house––can be up to tens of thousands of dollars, the average cost of refinancing is about $5,000.
The cost varies depending on the size of your mortgage and which state you are in.
What’s included in the cost of refinancing?
1. Loan-processing fee
There are many kinds of loan-processing fees, such as the mortgage origination fee and inspection fees. Generally speaking, they cost more than $1,000.
2. Service fees of third parties
This includes appraisal fees, which cost about $50. Other items like credit reports and flood certification can cost from $20 to $50 each. As for title rights, title insurance can range from a few hundred to a few thousand dollars. You also need to pay several hundred dollars to the escrow company.
3. Government charges
This includes government registration fees and stamp duty. The charges vary depending on the city and state.
4. Deposit in an escrow account
This deposit in an escrow account will be used to pay for property insurance and taxes in the future. Depending on the insurance policy and tax rate, generally speaking, you need to deposit several thousand dollars in advance.
Since your previous mortgage would be paid off after refinancing, the previous lender will send you a check to return the leftover balance in your escrow account.
5. Other prepaid expenses
If your property insurance or tax payment is due soon, you need to pay the bill in advance. You also need to pay the interest when transitioning from the old mortgage to the new one.
What is no cost refinance?
When we talk about no cost refinance, it usually means that all expenses––except for money in the escrow account and prepaid expenses––can be waived.
But this doesn’t mean there is really no cost. You’re just getting a slightly higher interest rate, and the extra credit that should be returned to you would be used to pay for the costs of refinancing.
Most people choose to include all the expenses in the loan balance, so that there is no upfront cost. Long-term speaking, you might need to pay interest for these several thousand dollars. But if you plan to sell the house or refinance in a few years, it isn’t such a bad idea.
Within three days after submitting the mortgage application, your lender will give you a loan estimate form, which will list the various expenses mentioned above. It’s worth noting that the cost listed there is only an estimate. Because you don’t know the specific transaction date yet, so some figures might change when the transaction is finally closed. If you have any questions about the amount of the cost, ask your mortgage broker about it.
What’s listed above is just the cost of conventional loan. If you have an FHA loan or a military VA loan, there might be additional expenses. If you bought points in exchange for lower interest rates, that would be an extra cost as well.