What are Refinancing Closing Costs

[porkedpie]

First time homeowner, we bought last summer and got a 7.375% 30 year fixed.
On comparison sites I am being offered a 6.62% refinance with a $1250 "closing cost". To decide if it's worth it, I need to know all the fees involved but I expect there are more fees than what's included in their $1250 - this is just the origination fee?

When we bought the house there were A LOT of other fees to close. I assume that not all of them are needed to refi, but not having any experience I'm not sure which.

The closing costs we had were:

Title - Lenders Title Insurance $3050
Origination fee $1790 (I think this would be the $1250 equivalent)
Survey fee $950
Title - owner's title insurance $575
Appraisal fee $547
Title - Settlement Service $475
Recording Fees (deed, mortgage, release) $425
Title - closer $200
Collateral Analysis Report $165
Title - County Search $125
Title - Examination $100
Title - Wire fee $100
Everything else that was <$100 summed to $531


If the total fees are anything like what we paid when we first bought, then it's not going to be worth it, but I have no concept of which ones would be applicable. A call with the offering mortgage company didn't help as they didn't know.

[InvisibleAerobar]

I hope you kept a copy of your closing disclosure from your initial/current mortgage. On the disclosure, the costs are broken down in sections, some of which I really don't deem to be true closing costs (such as funding of escrow), but others very much are (everything in sections A)-C)). Consult your existing disclosure and compare against what the lender is offering.

How various closing costs are presented is very much is standardized, and the CFPB has a good primer breaking things down. And for purpose of discussion, I consider only Sections A) - C) costs as true lender related closing costs, as costs imposed by a lender appears only in one of those three sections. In general, Sec. A) covers all origination; Sec. B) covers appraisal and various cert. fees; Sec. C) covers various title fees (and you generally don't need to repurchase owner's title insurance). Note that the lender's title insurance quoted looks rather high, as this amount generally is a bit lower than owner's title insurance.

The others closing costs are not imposed by the lender and can be drastically reduced if one forgoes escrow (an option that is available usually only with 20%+ down, and is something I would strongly suggest).

Ask your prospective lender to categorize all the various fees into the format on the closing disclosure and go from there. What you presented is rather intractable.

[porkedpie]

Thank you. I think my question is there likely to be a big difference in A-C costs between buying the house and refinancing? We paid over $7k at purchase closing (in A-C) - is that likely to be the rough amount to refinance too or are some of the biggest fees only applicable if it's a purchase?

[CAsage]

It can be anything that the new lender wants it to be. I refinanced several times (decades ago), before I finally figured out the only way to compare two real loan offers is with strictly no-cost, no-fee loans. Of course there are still fees, but they are included in the APR, i.e. the lender manages those costs internally. They are FAR more motivated to scrub costs, whereas when they simply bill you, it's easy to run up the tab. Frankly, I think there's a lot of padding in new loans - but then again, a new mortgage holder has to cover their risk, so due diligence (checking your current credit, getting a new title policy, appraisal) are likely to be needed. Assume the worst, get it in writing.

[gotoparks]

There was a big refinance mega thread a few years ago. You can probably find it and read the last ten pages or so. Many people were refinancing at a little higher rate than the lowest rate, and getting credits. Many were paid to refinance. I refinanced with Better.com and my cost was maybe a couple of hundred. I went after the lowest rate. I don't know if the conditions are still the same for doing a very low cost or no cost refinance.

[InvisibleAerobar]

Thank you. I think my question is there likely to be a big difference in A-C costs between buying the house and refinancing? We paid over $7k at purchase closing (in A-C) - is that likely to be the rough amount to refinance too or are some of the biggest fees only applicable if it's a purchase?

In general, no, with the addendum that one generally doesn't need to purchase owner's title insurance in a refi. So you can subtract out that part.

The quote lender's title insurance looks really high (it's ~6x the quote owner's title insurance, when usually lender's title insurance should cost ~60% of owner's title insurance). This may just be what's customary in your area, but I doubt that. You may want to dig around and find a title company offering better rates (titlegenius by radian offers quotes).

If $7k is too high, you could trade for more credit (aka negative points) at the expense of a higher interest rate, but I'm afraid you don't have much wiggle room here.

Were I in your situation, I'd want to see prevailing refi par rate (par rate being that of 0 point) of ~6.25% before I refi. This way, at 6.625%, there's enough lender's credit to cover all the fees, so you are in the black on day one.

[porkedpie]

This is also in line with an oft-quoted rule of thumb to only refinance if it's at least 1 percentage point lower rate.
I will hold out and hope rates drop a little more.

[tashnewbie]

I closed on my first house in May 2024 at 7.375%.

I refinanced to 6.5% in November with lender credit covering all closing costs (plus ~$300). I only paid prepaids (taxes and insurance) which are things I'd have paid regardless of the refinance.

Agree with others to look at sections A-C on the loan disclosure form.

When I was exploring a refi, I wanted the lender credit to cover all of those costs. When I was shopping around, I told lenders to quote options with no points and with lender credit covering all closing costs. They all provided options with points, too, for comparison.

I could've gotten a lower rate if I'd bought points, but I wasn't interested in that.

I recommend watching the 10-year Treasury trends because mortgage rates tend to follow it. There are other sites that provide the average rates at a given snapshot in time. Once you have that data, you can search for rates on a site like Bankrate, before contacting lenders. Then you'll know when/if refinancing is a viable option.

[AlmostThereCT]

If you have enough equity (over 20-25% of appraised value) you could look into a Home Equity Loan in 1st lien position. We refinanced our home with one from a local credit union. Rates were comparable to 30 yr fixed, and no application or closing costs at all. You might be limited to 15 or 20 year term, so payments would be higher due to shorter term. Worth looking into.