What is the average refinance closing costs? The fees add up

What is the average refinance closing costs? The fees add up

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  • The average refinance closing cost in the US is $5,779, according to data from financial tech company ClosingCorp. 
  • Refinancing closing costs aren’t just one fee — they’re actually several fees, including an application fee, appraisal and inspection fees, title fees, and prepayment penalties. 
  • According to the Federal Reserve, typical closing costs are about 3% to 6% of your mortgage’s principal.
  • Your refinancing costs will vary based on where you live, the value of your home, and your new and old lender’s requirements. 
  • Policygenius can help you compare homeowner’s insurance policies to find the right coverage for you, at the right price »

Refinancing your home can help save money on your monthly mortgage payment. It can lower your interest rate, or stretch your mortgage over several more years. 

But, the refinancing process can be expensive. Refinancing essentially replaces your old mortgage with a new one, and that can mean paying closing costs all over again. 

When you refinance, expect to see closing costs similar to what you paid on your first loan. According to data from ClosingCorp, the average home’s closing costs were $5,749 in 2019. The average refinance loan’s closing costs were $5,779, according to a LendingTree report based on ClosingCorp data, a difference of $30. 

One of the big factors that will influence the price you’ll pay on your home’s refinance is where you live. Your home’s location will have a big impact on the closing costs, since your closing costs involve taxes and your home’s value.

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According to data from ClosingCorp, the state you live in will change how much you pay at closing. Here’s the average closing cost in each state in 2019.

Closing costs are higher in some states than in others. In Washington DC, for example, where both property value and taxes are high, the average closing cost is over $25,000. In Wyoming, however, where both property taxes and values are relatively low, the average closing is about $2,4o0. 

Refinancing closing costs aren’t just one fee — there are several expenses that make up closing costs. Much of the money you pay during closing goes to cover administrative fees for the bank, while another significant part of the fee goes to taxes. 

Here’s a list of fees you can expect to see in your refinance process, along with estimates of of what each will cost according to data from the Federal Reserve and ClosingCorp.

Taxes: 

  • Average cost: $2,040 according to ClosingCorp data

Property taxes will be one of your more significant expenses when refinancing, and costs vary based on where you live, and your home’s value. According to Bank of America, six months of property tax is generally due at closing.

Application fee: 

Applying for another mortgage will cost you. While the fees don’t generally go past $300, they’re often not refundable. 

Loan origination fee: 

  • Cost range: Up to 1.5% of the loan’s principal

Not all lenders charge this administrative fee, but some do. It could be a costly addition to your closing costs — a $200,000 mortgage balance with a 1.5% origination fee would add $3,000 to your closing costs.

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Appraisal fee: 

  • Cost range: $300 to $700, if needed

If your home hasn’t been appraised recently, you may need to pay for an appraisal. This process has someone assess your home’s value. Some lenders also roll the appraisal costs into the application fee. 

Inspection fee:

While the appraisal focuses on value, an inspection focuses on structural integrity and looks for larger issues. Generally done by a property inspector, an inspection may cover things like the home’s water and sewage system and checking for termites. 

Title search and insurance: 

Lenders search for your home’s title to make sure you’re the owner, and check for any liens you have on the home. If there’s a mistake on the title that would jeopardize their investment, the title insurance steps in. But, it’s a cost you’ll pay for in your closing costs. 

Survey fee:

  • Cost range: $150 to $400, if needed. 

If your home hasn’t had a survey recently, your lender could require one. This essentially verifies that your home and all of its structures are where the title says they are. 

Attorney review and closing fee:

  • Cost range: $500 to $1,000

The company or lawyer that conducted your home’s closing will need to be paid for their work, and this will become part of your closing expenses. 

Prepayment penalty:

  • Cost range: One to six months’ interest payments, if applicable.

Some lenders charge prepayment penalties on loans paid off before expected. Since a mortgage refinance will essentially pay off your old loan before your expected payoff date, your old lender could charge a prepayment penalty.

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Not all loans have a prepayment penalty involved, and they aren’t allowed in some states by law. Ask your lender if your current mortgage has a prepayment penalty, and if so, how much it is. 

It is possible to refinance without paying closing costs up front. Instead, you’ll pay for the costs over the life of the loan.

Lenders make up for the closing costs in two ways, according to the Consumer Financial Protection Bureau. Some lenders will charge higher interest rates for borrowers who opt for loans without closing costs. Other lenders will add the closing costs to the loan’s principal, increasing the total amount you owe, and the total amount you’ll pay interest on.

While closing costs might seem high, it’s generally cheaper to pay them up front, even if you’re paying them a second time around while refinancing.