Closing costs
Updated
What is closing costs?
Closing costs are the fees required to originate a mortgage: origination, appraisal, title, recording, and prepaid items. On a refinance they commonly run about 2% to 5% of the loan amount.
Closing costs questions
- What are closing costs on a mortgage?
- The fees charged to originate and settle a loan: lender origination, appraisal, credit report, title search and title insurance, recording fees, and any prepaid interest or escrow deposits collected at the closing table.
- How much are closing costs on a refinance?
- Commonly two to five per cent of the loan amount, but the spread is wide. The figure depends far more on your lender and on your state's title and recording practice than on any national average.
- Who pays closing costs on a refinance?
- The borrower does, either in cash at settlement or by adding the costs to the loan balance. There is no seller to negotiate with on a refinance, which is why the whole amount lands on you.
- What is a no-closing-cost refinance?
- A loan where the costs are not collected separately at settlement. They have not disappeared: the lender either folds them into the balance or prices them into a higher interest rate, so you pay them across the term instead.
What it means in practice
You can pay closing costs in cash at closing or roll them into the loan balance. Rolling them in preserves cash but means paying interest on those fees for the life of the loan.
A so-called no-closing-cost refinance does not eliminate the costs. The lender either adds them to the balance or charges a higher interest rate to cover them.
Closing costs are the numerator of every break-even calculation, which is why an accurate figure matters more than an accurate rate quote when you are deciding whether to refinance at all.