What Are Refinance Closing Costs?

Refinancing your mortgage allows you to replace your current mortgage with a new loan, letting you lock in a lower interest rate or to change your loan terms. A cash-out refinance lets you both refinance and borrow against the equity you’ve built in your home. You can use the money from a cash-out refinance for anything you want, but most people use it for a big purchase like a remodeling project or paying for education.

Most lenders charge closing costs to refinance a mortgage — these are fees associated with processing your mortgage and include everything from appraisal to lawyer fees.

On average, closing costs can cost two to five percent of your loan’s amount. To avoid refinance closing costs, consider a cash-out refinance with Discover® Home Loans, which offers $0 in closing costs.

How much does it cost to refinance a mortgage?

If you refinance with Discover Home Loans, you don’t have to worry about bringing cash to your closing because Discover takes care of all closing costs. However, many traditional lenders do charge refinance closing costs. The amount you pay will depend on your lender, loan type, location, and how much you borrow, but typical refinance closing costs include:

Application Fees

Most refinance applications require a fee, and, usually, you must pay this fee even if you aren’t approved. Application fees can cost up to $500.

Origination fees

Often, lenders charge an origination fee to process your loan. A typical origination fee is 0.5% to 1% of the loan principal. This means, if the loan is $200,000, the origination fee will be between $1,000 and $2,000. 

Appraisal fees

Most lenders require an appraisal during the refinance process. On average, an appraisal costs between $300 and $500, but could be higher based on where you live (rural areas can be more expensive) and the size and condition of your home.

How to estimate closing costs for a refinance

Before you move forward with a refinance, decide whether it’s worth it for you. You can use the Discover Home Loans refinance calculator to see if refinancing makes sense. You can also calculate your break-even point, or the number of months it will take before you recoup all the costs associated with a refinance.

If it takes 100 months (over eight years) before you’ll reach your break-even point, and you plan to move within the next five years (sixty months), a refinance doesn’t make sense. However, if you plan to stay in your home for the next twenty years, refinancing is a good option.

How to pay refinance closing costs

There are a few ways to pay your closing costs. First, you can pay them upfront. Depending on your lender, you may be able to pay with a cashier’s check, certified check, or a wire transfer.

If you work with a lender that offers a no-closing-cost refinance, you can roll your closing costs into your new loan. A no-closing-cost refinance means you don’t have to come up with the cash to cover closing costs upfront. You will still pay for closing costs, they are just incorporated into your new loan. Another no-cost refinance options involves accepting a higher interest rate in exchange for waived closing fees.

Ways to reduce refinance closing costs

There are a few things you can do to reduce your closing costs, including:

Compare lenders

Always compare lenders to see who has the most reasonable refi closing costs or no closing costs. Discover Home Loans offers refinancing options that are completely free from closing costs. 

Improve your credit score

To keep your closing costs as low as possible, it’s helpful to have a high credit score. If you have time before you plan to refinance, work on improving your credit score. Pay all your bills on time and in full each month and consistently use a low percentage of available credit. A higher credit score can help you to secure better terms.