Refinance Closing Costs

Homeowners may have the option to purchase discount points to reduce their interest rate. Paying points increases the upfront closing costs but may lower the monthly payment and total interest over time. Whether this makes sense depends on how long you plan to keep the loan.

A “no-cost” refinance does not eliminate the costs of the loan. The lender may provide a credit toward some closing costs in exchange for a higher interest rate, or eligible costs may be added to the new loan balance. Some charges may still be paid by the borrower at closing.

Compare the interest rate, APR, lender credits, financed costs, monthly payment, and total cost over the time you expect to keep the loan.

Not every dollar shown at a refinance closing is the same kind of expense. Lender, title, appraisal and other settlement charges are generally costs of obtaining the new loan. Prepaid interest, property-tax or insurance payments, and deposits to establish a new escrow account can also affect the cash required at closing, but they serve different purposes. If your previous escrow account has a remaining balance after payoff, your old servicer may return it separately; do not count on its timing or amount as money available for the new closing.

A simple break-even estimate divides the net cost of obtaining the new loan by the projected monthly savings, where the payments and terms are genuinely comparable. That is only a starting point. Costs added to the new loan balance still matter, even if you do not pay them out of pocket. A longer term or larger loan balance may reduce the payment while increasing total interest. Compare your Loan Estimate, proposed principal balance, remaining repayment period, mortgage insurance and likely time in the home—not just cash to close or a simple number of months. See the CFPB explanations of the Loan Estimate and Closing Disclosure.