How Much Does It Cost to Refinance a Mortgage — and When Is It Worth It?

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Rates are falling — and oil's strange correlation

Welcome to Mortgage Mom Radio. I'm Debbie Marcoux, the Mortgage Mom, and today we're talking about interest rates — they are coming down, which has been great. I've mentioned before that although they don't directly correlate, interest rates will often move with oil: as the price per barrel drops, many times we see rates come down as well. So this is fabulous news. But we need to talk about refinances and closing costs, because with rates on the downward escalator, a lot of people can benefit from a refinance — and you need to know what it will cost you and when it makes sense to pull the trigger.

Why nobody can honestly advertise one rate

How far have rates come down? We're not quite back to October 2024 — those were by far the best rates we've seen since the Federal Reserve started raising its rate at the end of 2021, through the crazy moves of 2022 and into 2023 — but we are getting very close.

First, the disclaimers, because everybody gets a different rate. The property type affects it — single family, townhome, condo, one to four units. Your credit score affects it. Whether you include property taxes and insurance in the monthly payment or pay them separately affects it. Your loan balance, your home's value, your equity or down payment — your loan-to-value — all of it changes the rate. That's why I can't just say “rates are 2.99%, call me today” — and no commercial should be doing that either, because nothing can be guaranteed to anybody.

Where refinance rates were ten days ago vs. today

But to give you an example: go back not to this past Monday but the Monday before. A standard conventional refinance with 20% equity, no cash out, was right around 7.5%. An FHA refinance, same goal, with a credit score of 700 or above, was just below 7% — about 6.875%. As of today, we are locking FHA refinances right around 6.25%, and conventional refinances under 7% — right around 6.75%. That is a huge move in just over a week.

How rate rallies run, stall, and resume

Will it keep dropping? That's the big question. I sure hope so. The market looks like we should see a nice little rally for the next couple of days to a week, and then we'll probably taper off — that's what always happens. We see a run down, it stops, we run back up (never quite as high as where we left off), and then another run downward pushes past the last low. We're in the downward motion right now.

Think about the calendar: it's already February 26. The last time rates were almost this good was early October — November, December, January, and most of February have passed, four months, and we still haven't hit those numbers. I'm confident we'll see them again, probably during this rally. If you've been thinking about refinancing, get the application started so we can hit the lock button when we need to. Ask yourself: do you have time to wait a year? A year and a half? The people who didn't move fast enough in October have been sitting on hold ever since — we have a whole list of clients waiting for those rates to come back.

Float or lock: whose choice it really is

Starting an application does not mean locking a rate. Floating or locking is your choice as the consumer — and I'll be honest, many loan officers will lock you in without ever telling you it was your choice. It is your choice. We can start your application and you can say: “Debbie, if the rate gets to this number, lock me in and let's go” — and that's exactly what I have to do for you. But if there's no application in my system, I cannot lock anything. You have to have an active loan in the pipeline to lock an interest rate.

Who should be refinancing now

Who is this good for right now? Clients who bought or refinanced from mid-2022 through all of 2023 and most of 2024 — everything except that brief October window — are carrying rates well into the sevens. I have clients at 7.875%, 7.75%, 7.5%. If we can get you at least half a percent below what you have today, we want to look at the numbers.

I won't guarantee half a percent is enough — it depends on your balance. The lower the balance, the bigger the savings has to be to justify the closing costs. On a $200,000 or $300,000 loan, you may need three-quarters of a point to a full point — if you're at 7.5%, you may need to wait for 6.5% or even 6%. But a lot of you listening are in California, where a balance of $600,000, $700,000, $900,000 is conservative. At those numbers, a half-percent improvement is a very real monthly difference — at 7.25 or 7.5% today with 6.75% available, it's going to be well worth it.

FHA and VA streamline refinances

Let's talk closing costs, starting with FHA — because most people with an FHA mortgage who want a better rate should be looking at an FHA streamline, not a standard refinance, unless they need cash out. The same goes for VA loans: if you have a VA loan at a higher rate, you can streamline it too.

With a streamline, the lender doesn't want you borrowing more than your current balance — the goal is to lower your payment without increasing what you owe. There's no appraisal, no W-2s, no pay stubs. But there are still closing costs, and here's the key difference: with a VA streamline you can finance the closing costs into the loan. With an FHA streamline you cannot — they have to be handled another way.

Lender-paid vs. borrower-paid closing costs

Across the board — FHA, VA, conventional, jumbo — there are two ways to structure a refinance: lender-paid closing costs or borrower-paid. When the lender pays your costs, what's actually happening is a rebate: if the going par rate today is, say, 6.5% and I write your loan at 6.75%, the higher rate generates a rebate — call it $4,000. I don't pocket that money; I apply it to your closing costs. That's how we make FHA streamlines work even though we can't raise your balance to absorb the costs.

Nonrecurring vs. recurring costs

Nonrecurring closing costs are the one-time fees for getting the new loan: appraisal (when one is required), escrow, title insurance, credit report, notary, underwriting and processing. Those are what a lender credit can cover.

Recurring costs are different — they're the ongoing costs of owning the home that continue whether you keep your current mortgage or get a new one: property taxes, homeowners insurance, and mortgage interest. If you like your taxes and insurance bundled into one payment — impounded, or escrowed; the words are interchangeable — then every new loan has to establish a fresh impound account. Look at your current mortgage statement: most servicers show your escrow balance, the money you've saved up so the bank can pay the tax bill and the insurance bill when they come due. That account has to be rebuilt with every new loan.

Escrow accounts, impounds, and your refund

On a VA streamline, a conventional, or a jumbo loan, you can finance the new impound account into the loan — or bring it in out of pocket. With an FHA streamline you can't increase the balance, so here's how we handle it. Say you call me on February 26 and we close March 28. Normally you'd make an April 1 payment. Instead of skipping that payment — which is what people love about refinancing — we have you make your April payment to the escrow or title company handling the closing. That payment amount covers the new impound balance.

You still come out ahead, because within 30 days of being paid off, your old servicer — Lakeview, Mr. Cooper, PennyMac, whoever it is — is required by law to refund whatever is sitting in your old escrow account. If your statement shows a $5,000 escrow balance, that check comes back to you. So on a streamline: lender credit covers the one-time costs, you keep making payments without skipping, and you get your old escrow balance refunded.

On the loan types that allow financing everything, it comes down to preference. Finance all the costs, take the lowest rate available, skip a payment, and still get the escrow refund; or keep the new balance as close to today's as possible and take a lender credit instead. There are several ways to structure it — the point is to understand what you're choosing.

“No-cost refinance” ads, decoded

Do not get baited. You're about to see mortgage companies jumping out of the woodwork with radio and TV ads shouting “no-cost refinance.” Now you know what that means: a rate roughly a quarter percent higher than that day's par pricing, with the lender using the rebate from the higher rate to pay your closing costs. It's not free — it's a trade.

Break-even math in a falling-rate market

So which way is better? Honest answer: it depends on the environment, and I'd have told you something different two years ago. In a rising-rate environment, you want the very best rate you can get — maybe even paying discount points to buy it down — because you're going to hold that payment for a long time. That's not where we are. We're in a downward trend, which means we could refinance you today and rates could be better again in three or four months — good enough to do it again.

So right now, you want to limit what you spend on closing costs, because you need to earn back whatever you spend before the refinance has actually saved you anything. Say you skip the credit, take the lowest rate, and pay $5,500 in nonrecurring costs to save $300 a month: you need 18 months just to break even. We don't want you trapped for 18 months in a falling market. But if the lender pays those one-time costs and the refinance costs you nothing, then when rates drop again in four, five, six months, there's no hesitation — you do it again, and stack another savings on top.

What does a refinance actually cost? It varies with the loan size — title insurance is priced on the loan amount, and appraisals cost more for bigger, higher-value homes. But bundling it all together — escrow, title, notary, credit report, appraisal if needed, underwriting and processing — on average you're between $4,500 and $5,000. If a lender credit can offset that, you break even almost immediately and stay free to move again.

Who should call today

Here's where to start. FHA or VA: if your rate is 6.5% or higher, reach out at least to talk numbers — what rate do you need for it to make sense? — and get on the list for us to call the moment it's there. Conventional or jumbo: if you're above 7%, absolutely reach out today; there's a good chance we could be doing it right now. I have a client in underwriting whose lock we're about a day away from — she's going to save $750 a month. It all depends on your loan amount, your loan type, and your current rate — and that's what we're here to figure out with you. The people who took their time in October, waiting for rates to get even lower, missed four months of savings at $200, $300, $500 a month.

Do the math yourself

If you'd rather explore on your own before making a call — I'm like that too — get the Mortgage Mom Radio tools app. It has the calculators: put in your loan balance, try different rates, add your annual taxes and insurance, and see the monthly payments and the savings. There's an affordability calculator if you've been thinking about buying. Text the words PHONE APP to 844-935-3634 and you'll get a link back to save the app to your phone.

Wrap-up

Do not wait — if a refinance could be good for you, get yourself rolling. Call the office at 844-935-3634 — that's 844-WE-LEND-4 — or go to mortgagemomradio.com, don't forget the radio, and click the appointment button; that books directly onto my calendar and you'll get a call from me personally. If you want to know when I go live each week, text the word LIVE to that same number. I'm Debbie Marcoux, I'm the Mortgage Mom, and I'm here every Wednesday. Talk to you all real soon.