Refinancing a mortgage means getting a new loan to replace your current mortgage, which could lower your interest rate, accelerate your repayment term or cash out equity — all of which can help you achieve other financial goals. But lenders will charge you fees to refinance, just as they did when you got your initial loan.
Here’s what you need to know if you’re considering whether a mortgage refinance is worth the cost.
[Read: Best Mortgage Refinance Lenders.]
How Much Does It Cost to Refinance a Mortgage?
On average, homeowners can expect to pay 2% to 6% of the loan amount to refinance a mortgage. Refinancing a $300,000 home loan, for example, may cost $6,000 to $18,000.
Generally, any type of refinance loan will require closing costs. The amount you pay can depend on the amount you’re refinancing, the type of loan you currently have, the type of loan you’re refinancing into, what your lender charges for closing fees and where you live.
The table below shows some common fees for a conventional refinance and how much you might expect to pay. Government-backed refinance loans from the Federal Housing Administration, Department of Veterans Affairs and U.S. Department of Agriculture may have lower total out-of pocket costs. For example, FHA, VA and USDA offer streamline refinance options that don’t require an appraisal, but they may charge other up-front fees:
— FHA loan refinancing: Up-front mortgage insurance premium of 1.75% of the loan amount for cash-out or streamline options. If you’re refinancing within three years of when the initial FHA loan was borrowed, the original MIP may be partially refunded.
— VA loan refinancing: VA funding fee is 0.5% for Interest Rate Reduction Refinancing Loans, or IRRRLs, and between 2.15% and 3.3% for VA cash-out refinance loans.
— USDA loan refinancing: Up-front guarantee fee is 1% of the loan amount. USDA does not offer a cash-out refinance option.
“Not all of these fees are created equal, so you should request a breakdown when shopping around,” says Brian Walsh, certified financial planner and head of advice and planning at SoFi. “Lenders might be willing to waive the application fee or lower the origination fee. Even if a specific lender is not willing to lower their fees, having a detailed breakdown from each lender will help you make an educated and informed decision.”
You can get an idea of the fees you’ll be charged in your loan estimate, which also includes your interest rate, monthly payment and total closing costs. Your mortgage lender must provide you with a refinance loan estimate within three days after receiving your application.
Check out this sample loan estimate from the Consumer Financial Protection Bureau.
When to Refinance a Mortgage
It’s important to know if refinancing makes financial sense before you start the process. That involves looking at your short- and long-term financial goals, current mortgage terms, overall market conditions and reasons for refinancing, says John Dustman, senior vice president and head of consumer lending at Axos Bank.
Here are some reasons you may want to refinance:
Lower your interest rate. Refinancing to a lower mortgage rate may help you lower your monthly payments, get out of debt faster or save money over time. To determine if refinancing to a lower rate is worthwhile, you’ll have to calculate your break-even point. This is the time it takes for you to recoup what you spent on refinancing closing costs in the form of money saved in interest and monthly payments.
For example, assume it’s going to cost you $3,000 to refinance your mortgage, but this will lower your mortgage payment by $150 each month. Divide $3,000 by $150 and you get 20, which represents the number of months you’d need to recoup closing costs with mortgage savings.
[Calculate: Use Our Free Mortgage Calculator to Estimate Your Monthly Payments.]
Get out of debt faster. Accelerating your repayment term — like refinancing to a 15-year mortgage — can save you tens (or hundreds) of thousands over time. Of course, opting for a shorter repayment term will come at the cost of higher monthly payments, unless you’ve significantly paid down your principal balance or you’re able to get a much lower interest rate. “A large savings can be realized if you reduce your term of the loan,” Dustman says. “The flip side to this is that if you extend your term for several years beyond the maturity today, even at a lower rate, you may end up paying higher interest over the longer period of the loan.”
Tap your home’s equity. You may be weighing a cash-out refinance to tap equity for repair or renovation projects, which can add value to your home. Just be careful not to leverage too much equity, or you could end up underwater on your mortgage.
Switch to a fixed rate. Get more predictable monthly housing payments by refinancing an adjustable-rate mortgage to a fixed-rate loan.
Remove a co-borrower. Refinancing may be necessary after divorce if you need to remove a former spouse’s name from the original mortgage.
[SEE: Current Mortgage Refinance Rates]
Is a No-Closing-Cost Refinance Possible?
Refinancing with no closing costs is possible: “With a no-cost refinance, the lender essentially covers the closing costs rather than having to pay them yourself,” Walsh says. “In return, you will generally pay a higher interest rate.”
No-closing-cost refinancing could be an advantage if you need to refinance but don’t have a lot of cash to cover closing costs. That said, you should consider how such a loan could affect the amount you pay over the long term. A higher interest rate means more interest paid over the life of the loan, even if the difference in the rate is only fractional.
The other scenario to consider is having the closing costs rolled into the loan in lieu of a higher interest rate. In that case, your rate may not increase, but adding closing costs to the loan means a higher loan amount. That could raise your monthly payments, and you’d be paying interest on the closing costs over time.
[See: 2025 Mortgage Rate Forecast: When Will Rates Go Down?]
How to Reduce Mortgage Refinance Costs
There’s always a question of whether the costs of mortgage refinancing will outweigh the benefits. But there are some things you can do to reduce the cost of refinancing.
— Improve your credit score. Your credit score is one of the most important factors lenders consider when you apply for mortgage refinancing. Along with your income and other financial details, it can determine whether you’re approved for refinancing and the interest rate you’ll pay. The higher your score, the lower the rate you may qualify for, which could mean you’d pay less interest to refinance.
— Compare lenders carefully. Every lender is different when it comes to rates and terms for refinance loans, so shop around to find the best loan options for you. Start with your bank or credit union, but get rate quotes from other financial institutions, including online lenders. Compare rates across different types of refinance loans and the fees associated with each one.
— Check your current lender for refinance discounts. Some lenders may offer an incentive to existing customers to keep their business — and discourage them from refinancing with a different lender. For instance, your lender may cut you a small break on your interest rate or waive certain fees. Be sure to compare offers using the loan’s annual percentage rate, which can be found in your loan estimate.
— Negotiate refinance fees if possible. Once you’ve chosen a loan, don’t accept closing costs at face value. Reach out to your lender to see whether any costs associated with refinancing are negotiable. Some, like local recording fees or property taxes that must be prepaid, may be set in stone. But others, such as the application fee or credit check fees, may be up for discussion.
Michelle Black contributed to this piece.
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Is Refinancing a Mortgage Expensive? originally appeared on usnews.com
Update 10/21/25: This story was published at an earlier date and has been updated with new information.
