Mortgage refinance loans are commonly used by homeowners to get into a better interest rate or extend the repayment term on the loan to lower payments. Since refinance loans are entirely new loans, you can expect to pay closing costs as you did with your original mortgage. The closing fees on a refinanced mortgage generally equal a small percent of the total loan amount, around 3 to 6 percent on average.
HUD-1 Settlement Statement
Mortgage lenders use a standardized form to detail and calculate closing costs for loans, called the HUD-1 settlement statement. The HUD-1 list out each separate piece of the total fees and provides their cost. Your lender will provide you with a copy of the HUD-1 before the closing, so you can bring the correct amount to the meeting. The total amount on the HUD-1 should be similar to the amount stated on the Good Faith Estimate document the lender also provided you when your loan was approved.
Loan Originiation Fees
The refinance mortgage lender will charge fees to process the loan, just like your original lender did. You'll have to pay the application fee, costing around $100 to $300, and it typically includes the cost for the credit report. The biggest chunk of the closing fees generally come from the loan origination fee, that can be as high as 3 percent of the total loan amount. This loan origination fee pays for the underwriting and loan preparation process.
Fees for Services
In addition to the fees charged by the lender for the loan processing activities, the lender also requires some services to be completed by third party vendors. The services include the appraisal and title insurance. Your lender may also require a property inspection or land survey as well. The average costs for these services vary by the vendor and location. You can expect to pay a few hundred dollars for the appraisal and anywhere from $700 and up the title search services and insurance policy.
If you want to refinance your loan, but are strapped for cash some lenders offer no-cost refinance loans. With these loans you won't have to pay the closing costs up front, but that doesn't mean they aren't charged. The lender will either charge you a higher interest rate or add the closing costs onto the total loan amount. The no-cost option might be a good idea if you plan on selling the house in the near future, but if you stay for the long run you'll end up paying a lot more in interest on the closing costs amount than you would have paying it up front.
- Federal Reserve Board: A Consumer's Guide to Mortgage Refinancings
- Mortgage 101: What Are Mortgage Title Fees?
- Mortgage 101: What Is a No-Cost Refinance?
- The Legal Assistant: Understanding The HUD-1 Settlement Statement
- VA Loans: Closing Costs on Interest Rate Reduction Refinance Loans
- Bankrate: Refinance Closing Cost Options
- Zillow: Understanding Mortgage Fees and Closing Costs