Closing Costs

• Closing costs, also called settlement fees, are charges associated with every mortgage loan, including a refinance. Lenders charge this fee to cover their costs, and closing costs typically pay for attorneys, title search, recording fees, appraisal fees, loan origination and survey fees. Although some mortgage lenders advertise a "no closing costs" refinance, there is no way to avoid these fees. To reduce the out-of-pocket expense, lenders simply roll closing costs into the mortgage loan, increasing the balance.
  
  

Reducing Closing Costs

• Because closing costs run between 3 and 6 percent of the mortgage balance, some lenders accommodate buyers by waiving or reducing the costs of certain services. For example, if you're refinancing with your existing mortgage lender, the company may reduce the fee to process the loan or waive the fees associated with the application process or title search. Discuss closing costs with your lender before going through with the process. Ask about options to reduce these costs.
  
  

Shopping Around

• Talking with different mortgage lenders and getting quotes for a mortgage refinance are other options for saving money on a refinance. Lenders charge different fees for their services, and whereas one lender may charge $5,000 in closing fees, another lender may only charge $3,500. Mortgage quotes include a good faith estimate that outlines the interest rate, closing costs and monthly payment. Shopping around and comparing multiple quotes will help you save on the refinance.
  
  

Mortgage Points

• Some people choose to pay mortgage points to reduce their interest rate on a refinance. While paying two or more points can significantly reduce your rate, paying points increases your out-of-pocket expense due at closing. Each point paid to your lender costs 1 percent of the loan balance. Thus, paying two points on a $200,000 mortgage will cost $4,000. Accepting a higher interest rate in lieu of paying points saves money on the refinance.