Mortgage refinance involves giving up your current mortgage for a new loan with different terms. This offers several benefits. It can help you save money if you qualify for a lower interest rate. Or it could lower your monthly payments and make them more affordable. It also allows you to free up cash by tapping into your home equity.

The biggest downside of refinancing a mortgage is the high closing costs. These high fees are what deter many homeowners from refinancing their home loan. Before signing any agreement, it helps to explore ways to avoid or lower some of these costs. Below are some tips for lowering your mortgage refinance costs and things you will want to look for.

What Are Closing Costs? How Much Will I Pay In Closing Costs?

Closing costs are the fees the lender charges you to refinance your mortgage. You’ll pay these costs when you sign the refinancing papers. The total amount you pay will depend on a number of factors. Generally, closing costs come to about 3% to 6% of the total amount you’re refinancing. If you’re refinancing a mortgage of $150,000 you can expect to pay about $4,500 to $9,000.

Here’s a breakup of what’s included in the closing costs to refinance a mortgage:

• Origination fee – Your lender will charge you a fee to process, underwrite and close the new loan. This is called an origination fee. Most Lenders charge about 1% to 3% of the total loan amount as the origination fee. This can vary among lenders so make sure to ask.
• Appraisal fee – An appraisal fee covers the cost of having an appraiser assess your home. This helps them determine the fair market value of your property. Professional appraisers charge anywhere from $300 to $500 for a site appraisal.
• Credit report fee –When you apply for refinancing, your lender will run a credit check. This is to review your credit report and score, and determine your creditworthiness. This will impact the interest rate and repayment terms on your mortgage. Credit bureaus charge between $30 and $50 for a hard credit check.
• Homeowners insurance fee – You will need to buy homeowners insurance before refinancing. This is to protect their financial investment from damage in case of a fire or natural disaster. This cost varies among insurance providers.
• Title insurance fee – You’ll also need to buy a new title insurance policy before refinancing. This is necessary to ensure that you have a clean title to the property. It protects the lender in case anyone claims they have a right to the property. Getting a title insurance costs about $1,000. It could be higher or lower depending on the loan amount and where you live.
• Discount points – This is an optional fee you pay upfront to get a lower interest rate on your mortgage. One ‘point’ is equal to 1% of the total loan amount. If you have a $150,000 loan, one point will cost you $1,500. The more points you pay, the lower the interest rate you’ll pay on your loan.
• Prepaid interest charges – When you close on the refinance, some lenders may ask you to pay the first month’s interest upfront. The exact amount you’ll need to pay will depend on your interest rate.
• Recording fee: You’ll have to record the mortgage transaction with the county where your home is in. The recording fee varies from one county to another.

Some of these closing costs are charged by the lender. Other fees are charged by third-parties who facilitate the process. Some of these fees are negotiable but others aren’t.

Which Closing Costs Are Negotiable And Which Aren’t

Negotiable costs include:

• Origination fees – This is a rate that the lender charges. You can ask them to lower this fee or remove it altogether.
• Homeowner’s insurance – This is a fee that a third-party charges. It makes sense to shop around for the best insurance policy.
• Title insurance – This is also third-party fee. You can compare rates and shop for discounts.
• Underwriting fees – Your lender may charge this instead of the origination fee or in addition to it. Speak to your lender about waiving the fee or reducing it.

Non-negotiable costs include:

• Appraisal fee – This is a necessary cost. Most appraisers in an area charge similar fees so there isn’t much scope for negotiation. Appraisal fees are usually the buyer’s responsibility
• Credit check fees – This is a fixed fee that each credit bureau charges to check your credit report. The lender pays to get your credit report. They may or may not pass that cost on to you.

How To Lower Some Closing Costs

Besides closing costs, these are some things you can do to lower your total mortgage refinance costs.

1. Compare lenders – Lenders vary in the interest rate they offer as well as the mortgage terms. You can save a lot by choosing a lender offering you the lowest interest rate.

2. Start with your original lender – While it’s good to check the competition, don’t forget about your own lender. Lenders prefer to keep their existing clients instead of looking for new clients. Your lender may give you the best deal so they don’t lose you as a client.  You’ll get the best deal possible if you have a history of making on-time payments.

3. Negotiate fees – Always negotiate the fees. This is whether you refinance with your same lender or a new one. Lenders often raise their rates to leave room for negotiation. Open up negotiations with your lender and see where it goes.

4. Request to waive appraisal services – This may be possible if you had your property appraised recently and real estate prices have not changed a lot. This one step can save you hundreds of dollars.

5. Don’t buy discount points – Discount points are optional. It does help you save money in the long run but it can add a lot to the closing costs. If you don’t have that money on you, you don’t have to buy discount points.

6. Comparison shop third-party services – When paying for third-party services, compare different service providers. Ask about their fees and what they offer for that fee. Find out what’s included in the fees. Finally, hire a company or individual offering the best deal.

Don’t let the high closing costs keep you from enjoying the benefits of refinancing your mortgage. The tips above can help to lower your mortgage refinance costs.