How to Pay Less Refinance Closing Costs

Refinance closing costs are going down as much as 7% nationwide according to one lender’s recent survey. Mortgage rates are still at historically low levels making the most important aspect of refinancing (that you control) the fees you pay. Here are several tips to help you pay less refinance closing costs and get the best deal on your next home loan.

How Much Are Typical Refinance Closing Costs?

The mortgage fees you pay and how much depends on where you’re living and what kind of home loan you choose. Every mortgage loan has fees and refinancing is no exception. There are so-called no fee refinance offers out there but you’ll always be trading higher mortgage rates for the lender paying your loan origination fee and other closing costs.

The survey I mentioned claims that on average closing costs are down 7% from the previous year nationwide. It’s worth noting that the same survey had closing costs up 37% the year before thanks to new government regulation.

How much you end up paying when all is said and done depends on the state you live in along with the amount of your loan. If you live in a high-cost state like New York, California, or Maryland you can expect to pay more at closing than someone in Missouri which had the lowest average closing costs.

Some states like Florida levy a tax on all mortgage transactions driving up cost. Here are the top 5 most expensive states when it comes to refinance closing costs:

1. New York where closing averages $5,435
2. Texas where closing averages $4,619
3. Pennsylvania where closing averages $4,467
4. Florida, closing averages $4,395
5. Oklahoma where closing averages $4,352

Which states have the lowest closing costs?

1. Missouri where closing only averages $3,006
2. Kansas, averaging $3,193
3. Colorado where closing averages $3,193
4. Iowa, averaging $3,257
5. Arkansas where closing averages $3,325

Across the country refinance closing costs average $3,750, just shy of 2% of the home loan amount. Most brokers quote an outdated “rule of thumb” that closing costs should be 1.50%. There isn’t a state in the Union that came in close to 1.5% in the last survey.

How to Pay Less Refinance Closing Costs

The good news is that some of the mortgage fees you pay when refinancing are negotiable. The most commonly overpaid refinance closing costs include the loan origination fee and discount points, all negotiable. Loan origination is the fee paid to the person or company arranging your loan. I’ve seen origination fees as low as $400 with community credit unions or as high as 2%.

The less you pay for loan origination the better off you’ll be. If you don’t have cash to pay the originator you could accept a higher mortgage rate in exchange for the lender paying all or part of your closing costs. Don’t be afraid to haggle with potential brokers and lenders over loan origination.

Suppose for example you’re being quoted 30-year fixed refinance rates at 4.0%. In Texas the refinance closing costs for this mortgage average $4,619. You could accept slightly higher refinance rates at 4.25% and pay zero closing costs. On a $250,000 mortgage the difference in your monthly payment is $36.31.

Which is the better choice? It depends on what you’re already paying and how much longer it’s going to take you to break even recouping your out-of pocket mortgage refinancing expenses. If you’re unable to break even because of a higher payment amount or term length you’re going to be losing money, no matter what your interest rate.