How Much Does It Cost to Refinance a Mortgage?

Refinancing your mortgage can help you lower your monthly payment, reduce the total interest you pay, or free up cash for other goals. But the process comes with costs—some expected, others easy to overlook.

In this guide, we’ll break down exactly what those costs look like, what affects them, and how to decide if refinancing is worth it. Whether you’re thinking about switching from an adjustable-rate mortgage or pulling equity out of your home, this will help you run the numbers with confidence.

Why Homeowners Refinance

There are a few common reasons people choose to refinance. Each one is tied to a specific financial goal—and in the right situation, refinancing can help you get there faster.

Lower your interest rate – If rates have dropped since you first got your mortgage, refinancing could reduce your monthly payment and the total interest paid over time.
Switch to a fixed-rate mortgage – Adjustable-rate mortgages can start low and then spike. A fixed-rate loan locks in a consistent payment and adds predictability to your budget.
Cash out your equity – A cash-out refinance lets you borrow more than you owe and take the difference in cash. You can use it for home improvements, medical bills, or debt consolidation.
Change your loan term – Some homeowners refinance into a shorter loan term to pay off their mortgage faster. Others extend the term to lower their monthly payments.
Eliminate private mortgage insurance (PMI) – If your home’s value has gone up, and you now have more than 20% equity, refinancing may let you remove PMI and reduce your monthly costs.

Not every refinance will save you money long-term, so it’s important to weigh the potential savings against the upfront costs.

Types of Mortgage Refinancing

Not all refinancing options work the same way. Here are the most common types and how they work:

Rate-and-term refinance – This is the standard option. You keep the same loan balance but refinance into a lower interest rate, a different loan term, or both. It’s often used to reduce monthly payments or pay off the mortgage faster.
Cash-out refinance – This increases your loan balance so you can take out some of your home equity in cash. Lenders typically require you to maintain at least 20% equity after closing.
Streamline refinance – Offered for government-backed loans like FHA, VA, or USDA, this type skips many of the usual steps like income verification or full appraisals. You must already have the same type of loan to qualify.
Home equity line of credit (HELOC) – While not a refinance in the traditional sense, a HELOC lets you borrow against your equity as needed. Some homeowners use it along with a refinance for extra flexibility.

How Much Does It Cost to Refinance?

Refinancing usually costs between 2% and 6% of your total loan amount. These charges vary based on your lender, loan type, and location. Here’s how those costs break down.

Upfront Lender and Loan Fees

These are fees charged by the lender or tied directly to your new mortgage:

Application fee – $75 to $300. Covers processing, credit checks, and administrative work.
Loan origination fee – 0.5% to 1.5% of your loan amount. The loan origination fee is the lender’s setup fee for the new mortgage.
Discount points – Optional. You can pay these upfront to lower your interest rate. One point equals 1% of your loan.

Property-Related and Legal Costs

These fees are tied to your home’s value, condition, or the legal paperwork involved:

Appraisal fee – $300 to $700. Most lenders require a fresh appraisal to confirm your home’s value.
Inspection fee – $175 to $350. Required by some lenders to confirm the home’s condition.
Title search and title insurance – $700 to $900. Confirms ownership and protects against legal issues with the title.
Attorney or closing fees – $500 to $1,000. Some states require a real estate attorney to review the documents.

Additional Charges and Variable Costs

These depend on your specific loan type, lender policies, or state regulations:

Private mortgage insurance or government fees – FHA and VA refinances may include an upfront mortgage insurance premium or funding fee.
Survey fee – $150 to $400. Some lenders require a survey to verify property boundaries.
Prepayment penalty – If your current mortgage has one, a prepayment penalty could cost several months of interest.

Costs That Vary by State or Lender

Your total refinancing costs can also depend on where you live and which lender you work with:

State differences – Some states charge extra taxes or require attorneys, which can increase closing costs.
Lender pricing – One lender might advertise lower rates but charge higher fees. Another might offer “no-closing-cost” refinancing but raise your rate to cover expenses.

Tip: Always compare loan estimates from multiple lenders. Don’t focus just on the rate—look at the fees and annual percentage rate (APR) to get a complete picture.

How Credit Scores Affect Refinancing

Your credit score has a direct impact on your refinancing options. The better your credit score, the better the rate you’ll qualify for—and the more you’ll save over time.

Higher credit scores get lower rates – A credit score above 740 will usually qualify for the best interest rates. Even small differences in your credit score can raise or lower your rate.
Lenders have minimum requirements – Conventional loans often require a credit score of at least 620. FHA loans may go lower, but you’ll pay more in fees and interest.
Poor credit limits your choices – If your credit score is below 600, you may have trouble getting approved for a refinance—or the rate might not justify the cost.

Improving your credit score before refinancing can make a big difference. Focus on paying down balances, disputing errors on your credit report, and making all payments on time in the months leading up to your application.

Real Examples: When Refinancing Pays Off

Sometimes the best way to understand refinancing is to see how it plays out in real life. Here are a few examples that show how different goals can lead to meaningful savings—or peace of mind.

Lowering the rate: Monica had a $300,000 mortgage at 6.5%. She refinanced into a 5.1% rate and lowered her monthly payment by $260. Even after paying $7,000 in closing costs, she broke even in under three years and will save over $50,000 in interest if she stays in the home.
Switching from ARM to fixed: Tyler and Jasmine had a 5/1 adjustable-rate mortgage. Their interest rate was set to rise from 3.25% to over 6%. They refinanced into a 30-year fixed loan at 5.5%. Their payment went up slightly at first, but they now have stability and protection from future rate hikes.
Cashing out equity: Leo had $100,000 in equity and $120,000 left on his mortgage. He refinanced into a $160,000 loan, took $40,000 in cash, and used it to renovate his kitchen and bathrooms. The updates increased his home value and helped avoid high-interest credit card debt.

Step-by-Step Mortgage Refinance Process

Refinancing follows a clear process, though it can vary slightly by lender. Here’s what to expect:

Review your current mortgage and goals – Know your current rate, monthly payment, and remaining balance. Decide what you want to achieve.
Check your credit score – The higher your credit score, the better your refinance terms. Review all three major credit reports for errors.
Shop around for lenders – Compare rates, fees, and terms from multiple lenders—including banks, credit unions, and online lenders.
Get prequalified – This gives you a sense of what you might qualify for and lets you compare realistic offers.
Gather documents – You’ll typically need pay stubs, tax returns, bank statements, and mortgage details.
Lock your rate – Once you find a good offer, lock in the rate to protect against changes while your application is processed.
Get a home appraisal – Most lenders require one to confirm your home’s value.
Complete underwriting – The lender verifies your income, assets, debt, and property information.
Close on the loan – You’ll review and sign final documents, pay any closing costs, and officially refinance your mortgage.

Final Thoughts

Refinancing can be a smart financial move—but only if the long-term benefits outweigh the upfront costs. If you’re planning to stay in your home long enough to recoup the fees through monthly savings, it might be worth it. If you’re planning to move soon or the rate improvement is minimal, the math may not work in your favor.

Think about your goal: Are you trying to lower your payment, pay off your home faster, or tap into equity? Then look at the numbers: What are the closing costs, what’s your new interest rate, and how long will it take to break even?

When in doubt, get quotes from multiple lenders and run the comparisons. There’s no one-size-fits-all answer—but a well-timed refinance can lead to serious savings and financial breathing room.

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