The closing costs to refinance a home can vary significantly, especially from state to state. The amount of money you need to close on a refinance depends on the type of mortgage you applied for. Refinancing costs can be broken down into two main categories: fees charged or collected by the lender, and a variety of other costs that may need to be paid to replace your old mortgage with a new one.
Costs Depend on The Size of Loan
According to the Consumer's Guide to Mortgage Refinancings published by the Federal Reserve Board, the cost to refinance typically falls into a range of 3 to 6 percent of the amount of the loan balance to be refinanced. These percentages result in a pretty wide spread for a specific loan amount. For example, on a $200,000 mortgage balance, closing costs could range from $6,000 to $12,000. If the size of the loan you are refinancing is larger, the total costs will be proportionally bigger.
Lender Specific Fees
Certain fees charged by mortgage lenders are universal and do not vary much by state. The largest of these costs will be the lender's own origination fee. The lender will also collect from you the costs of an appraisal and credit reports. According to the Bankrate website, in 2013 these costs averaged $2,402 on a $200,000 mortgage. By state, the lender fees ranged from a low of $2,119 in Wisconsin up to $2,919 in Hawaii. The combination of a title search and title insurance is another closing cost that Bankrate previously included in its annual survey, but dropped for 2013. The Federal Reserve Board guide gives a range of $600 to $900 for the costs related to title insurance.
Extra Costs That Can Pile On
The handful of other closing costs either vary greatly, or you may or may not have to pay them, depending on your refinance choices. These costs can include private or federal mortgage insurance, mortgage points, taxes, homeowners insurance, interest points, pre-paid interest, and attorney fees. You will most likely pay some of these costs, and the total likely will add up to 2 to 4 percent of the loan amount, possibly higher.
Lenders Vary So Shop Around
Your best chance for lower closing costs if you refinance your mortgage is to get price quotes from several different lenders. The Federal Reserve guide recommends that you get price quotes in writing before you pay any non-refundable fees. Another way to lower your closing costs is to compare different types of loans. For example, it may be less costly to go with a conforming mortgage and pay private mortgage insurance compared to an FHA-insured loan with its required up-front mortgage insurance premium.
Tim Plaehn has been writing financial, investment and trading articles and blogs since 2007. His work has appeared online at Seeking Alpha, Marketwatch.com and various other websites. Plaehn has a bachelor's degree in mathematics from the U.S. Air Force Academy.