How to cut fees and save more on your mortgage

Refinancing your mortgage can be a powerful money-saving move, but it can also become expensive quickly. Between application fees, appraisals, and closing costs that can total thousands, a refinance sometimes costs nearly as much as buying a home.

The good news? You can lower these costs — both up front and over the life of your loan. Here’s how to get a low-cost refi and keep more of the savings where they belong: in your pocket.

When mortgage refinance lenders advertise a low-cost refinance or low-closing-cost refinance, they’re really talking about trimming the fees tied to replacing your current mortgage with a new one. Common fees include appraisal, title, origination, underwriting, and recording fees — and they typically add up to 2% to 6% of your loan amount.

It’s crucial to understand the difference between a low-cost refi and a low-closing-cost one. A true “low-cost” refinance reduces those charges, while a “no-closing-cost” refinance usually just shifts them elsewhere.

With a no-closing-cost refinance, the lender pays the fees for you at closing. However, you’ll still pay these fees in one of two ways. First, you could pay a higher interest rate. Second, you could roll the closing costs into your mortgage balance, and between the larger principal and interest paid on that balance, you’d pay more in the long run. Either way, the key to saving money is knowing where the costs live and which ones you can negotiate or eliminate

Shop lenders and compare loan estimates line-by-line

Refinance rates and fees can vary widely between lenders. Before committing to a refinance offer, obtain at least three Loan Estimates, which are standardized forms that break down every charge. Compare line items like origination fees, underwriting costs, and discount points.

If the mortgage lender fees with one company seem high, use a competing quote as leverage. Many lenders will try to match or beat a competitor’s offer. Even a few hundred dollars shaved off closing costs can shorten your break-even point (the time it takes for your refinance savings to outweigh the up-front expense).

Lender credits can help offset your refinance costs. Essentially, you accept a slightly higher interest rate in exchange for the lender covering some (or all) of your closing costs. It’s a popular way to achieve a low-cost refi without bringing cash to the closing table.

This strategy comes with a caveat: The higher interest rate increases your monthly payment and overall interest costs. Because of this, lender credits make the most sense if you plan to sell or refinance again before you reach your break-even point. If you plan to stay in the home and keep your original mortgage for a long time, you’ll pay more in the long run.

While many closing costs are fixed, it’s possible to reduce closing costs to achieve a low-cost refinance. For example, if your property’s title hasn’t changed hands since you bought the home, your title insurer may offer a reissue rate.

A title reissue rate is basically a discount on title insurance when you refinance. Since the issuer already checked your property’s ownership history during your original purchase transaction, they don’t have to do all that research again. As a result, you get a lower, “reissued” rate instead of paying full price for a new title policy, which could save hundreds.

Another strategy for reducing extra fees is to have a flexible timeline. If you aren’t in a hurry to close before a certain date, you can avoid fees for things like a rush appraisal, which usually comes with a premium added. Adhering to standard timelines can also help trim costs by avoiding additional fees for extended rate locks, which require you to pay to keep your interest rate locked beyond the lender’s standard rate lock timeline.

Finally, you might want to reconsider paying discount points. Even though points lower your interest rate, they’re still an up-front cost to be paid at closing. If your goal is a low-closing-cost refi, you may be better off keeping the cash.

If you want to refinance with the same mortgage lender, ask whether they offer loyalty discounts or fee waivers.

Do you have bank accounts with a company other than your lender? Ask them about discounts too. Many credit unions and large banks provide reduced closing costs for existing customers. Some employers even partner with lenders to offer mortgage perks.

A low-cost refinance isn’t just about minimizing closing costs. It’s also about setting up your new loan so you spend less month to month. Use these tips to help bring payments down and keep the refinance savings going for years to come.

Your credit score plays a big role in determining your refinancing rate. Improving your credit score can shave a half a percentage point or more off your interest rate, translating to serious monthly savings.

Before applying, pull your credit reports for free at AnnualCreditReport.com and check for errors. Dispute any errors with the appropriate credit bureau, pay down revolving debt, keep your credit utilization below 30%, and avoid opening new accounts as you approach the time when you’d like to refinance. Simple steps to clean up your credit can lead to modest score increases and lower interest rates.

Your debt-to-income ratio (DTI) measures how much of your monthly income goes toward debt payments. It tells lenders how comfortably you can take on a new loan. The lower the DTI percentage, the stronger your application looks.

To improve your DTI ratio, pay down high-interest debts and personal loans, or look for ways to increase your income temporarily through overtime, side work, or bonuses. Reducing your DTI ratio can increase your likelihood of mortgage approval and help you lock in a lower interest rate.

Your loan-to-value ratio (LTV) compares how much you owe on your home to what it’s worth. Lenders use it to gauge risk: The more equity you have, the safer the lender considers the loan to be.

You can raise your equity and lower your LTV ratio by making extra principal payments and investing in value-boosting home improvements, or through market appreciation. A lower LTV ratio could earn you a better rate or even remove the need for private mortgage insurance (PMI), which lenders require for conventional loans if you have less than 20% equity in your home.

Consider timing and market conditions

Interest rates fluctuate constantly, and timing your refinance can make a big difference. Even a 1% drop in your mortgage rate can lead to hundreds in monthly savings and thousands over the life of your loan.

But when’s the right time to lock in your mortgage rate? If you find rates trending lower, consider locking your rate when you’re confident you’re near the bottom.

In fluctuating rate environments, it can be beneficial to work with a lender that offers rate float-down options. These arrangements enable you to secure a lower rate if market rates drop before closing, helping to alleviate the anxiety of potentially locking in your rate too soon.

Typical refinance fees range from 2% to 6% of your loan balance, depending on your location, loan type, and mortgage lender. For a $300,000 mortgage, that comes out to roughly $6,000 to $18,000 at the closing table. These costs cover appraisal and title fees, government recording charges, and lender origination fees. You can often reduce these by shopping around, asking for a lender credit, or reusing previous title work. Always request a detailed Loan Estimate to compare fees side by side before committing to a refinance lender.

Refinancing your home can temporarily hurt your credit score, as lenders perform a hard inquiry when you apply for preapproval. The impact is usually short-lived, especially if you keep your existing accounts open and make on-time payments. If you’re shopping for rates, multiple preapproval applications within a 45-day window generally count as one inquiry under the FICO scoring model. VantageScore works similarly, except it only gives you a 14-day window. By applying for preapproval with multiple lenders within a couple of weeks, you can compare lenders without fear of major score damage.

Often, yes — but it depends on your loan size, term, and how long you plan to stay in the home. A 1% rate reduction can save hundreds per month on larger loans and thousands over time. However, if you have a small balance or plan to move soon, the closing costs associated with a refinance may outweigh the benefits. Use a refinance calculator to find your break-even point (the month when your savings outlast refinancing costs) to see if a 1% rate drop truly pays off for you.

Laura Grace Tarpley edited this article.