How Much Should I Pay to Refinance My House?

Refinancing costs can be expensive.

Refinancing May be Expensive

The standard cost of refinancing, which includes loan origination fees, appraisals, inspection, title search and insurance, points, private mortgage insurance and pre-payment penalties can be as much as 3 to 6 percent of the outstanding balance on the mortgage.

No-Cost Refinancing is an Option

There are two basic no-cost refinancing options. In the first, the lender pays the closing costs and charges a higher interest rate for the life of the loan. The second option is to have the closing costs added to the loan amount, which decreases the equity in the home and increases the amount of interest paid on the loan.

Bottom Line

Paying the closing costs upfront is probably a smarter move, especially if the home will be sold in a few years, since most no-cost refinances include a pre-payment penalty. Never pay more in costs than will be saved by refinancing.

References

• The Federal Reserve Board: A Consumer's Guide to Mortgage Refinancings
• Home Buying Institute: Home Refinance Costs: How to Run the Numbers