Refinancing your mortgage comes with closing costs. Learn how much and how to save money at closing.
Refinancing a mortgage allows homeowners to renegotiate the terms of their home loan by replacing their current mortgage with a new one. Refinancing can help you lower your monthly mortgage payment, shorten your loan term, or access home equity as cash. You may also be able to switch from an adjustable- to a fixed-rate mortgage, eliminate mortgage insurance, or remove a co-signer.
While the benefits of refinancing a mortgage are clear, refinancing comes with a cost. You’ll have to pay closing costs to finalize the new mortgage loan — similar to when you bought your home. Sometimes refinancing can save you thousands of dollars, outweighing the cost to refinance. Before deciding on a mortgage refinance, learn more about the cost of refinancing and how to calculate your potential savings.
A mortgage refinance is the replacement of your current home loan with a new one. The new home loan is used to pay off the first one and usually comes with better terms, such as a lower interest rate or reduced monthly payments.
You can read more about how refinancing works, or explore refinance options with us at Zillow Home Loans*.
On average, a homeowner pays $5,000 to refinance their mortgage. The cost to refinance a mortgage depends on the size of the loan, the location of the home, and lender fees. All these costs are referred to as refinancing closing costs. Closing costs on a mortgage refinance are typically 2-6% of the remaining loan principal.
Here is a list of common refinancing fees. Note, your fees may vary depending on the location, property, lender and third parties involved in the transaction:
Depending on your lender and the specific loan program, you may be responsible for additional fees, such as mortgage insurance premiums, upfront funding fees, or mortgage points. Be sure to ask your lender about all the fees associated with a mortgage refinance before deciding to move forward.
Let’s say you have a remaining balance of $250,000 on your current adjustable-rate mortgage and rates are at 6.5%. You’d like to switch to a new 30-year fixed rate mortgage of 5%. The closing costs for a mortgage refinance would be $10,000 — or 4% of the loan principal.
You could either pay that amount upfront, or obtain a no-closing cost refinance and pay little to nothing out of pocket. Closing costs are often rolled into the mortgage principal, or offset by a higher interest rate. While a no-closing cost refinance may save you money in the short-term, you’ll probably end up paying more in interest over the life of the loan.
You can use our Refinance Calculator to estimate the cost of refinancing your mortgage and play out different scenarios to determine when refinancing is right for you.
Refinancing could cost you more than you save without proper planning. Here are a few things you can do to save on mortgage refinancing costs:
Depending on how much equity you have, you may qualify for a no-closing cost refinance. This type of refinance option allows a borrower to lower their upfront refinancing costs by rolling prepaid fees and other closing costs into the new loan — meaning you could pay zero out of pocket expenses. Keep in mind, prepaid fees for insurance and taxes are used to establish a new escrow account for the new loan. You’ll get refunded the balance on your existing escrow account after closing.
Refinancing with your existing lender may be less expensive than refinancing with a new one. Lenders might waive or lower certain fees for existing customers. Lenders are also more willing to offer favorable interest rates to borrowers who have demonstrated good will and consistently paid their mortgage on time. You may also be able to forgo a home appraisal or property survey if you’ve recently completed one.
In addition to contacting your existing lender, reach out to at least two more lenders to compare fees and rates. Pay close attention to their closing costs and APRs. You may want to work with a mortgage broker to get a full range of offers.
Lastly, it’s always a good idea to boost your credit score by paying down debt. Improving your creditworthiness can help you get approved and obtain more favorable terms. While a lower credit score won’t eliminate or reduce your closing costs, it can help you save a significant amount in interest over time.
Your borrowing situation often informs your decision to refinance. Consider current market conditions, along with personal refinance goals, to determine if now is a good time to refinance. Start by weighing the cost of refinancing against your actual savings. For instance, if you intend to sell in five years, and a refinance only saves you $100 per month, but the upfront origination cost is $6,000 — it might not make sense to refinance. If your savings are greater or you plan to hold the new loan longer, a refinance may make sense.
Zillow research from 2024 reported that a rule of thumb among the lending industry is that refinancing may be worth considering if the mortgage rate drops by at least one percentage point. This threshold was used as a guideline to reveal that one in ten home buyers from 2023 may find refinancing advantageous. You can check current refinance rates and compare them against your current interest rate to see if you fall within this threshold.
Although saving money on interest is a major benefit of refinancing, it’s not the only reason a borrower may want to refinance. Homeowners who have accumulated at least 20% equity may seek a refinance to eliminate mortgage insurance or tap into their home equity.
Consider your short- and long-term financial goals. If you think you can get a better rate with a higher credit score, it might make sense to wait a couple of years after you’ve had the chance to improve your credit before applying for a refinance. If you need access to quick cash, it may make more sense to do a cash-out refinance now, rather than save money over time.
Speak with one of our loan officers at Zillow Home Loans* to determine if now is the right time for you to refinance your mortgage.
*An equal housing lender. NMLS #10287
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