Refinance Closing Costs: How to Compare Loan Estimates Line by Line

Refinance closing costs are the fees you pay to take out the new loan: lender charges, discount points, appraisal, title and government recording fees, plus prepaid items like interest and escrow deposits. The best way to compare lenders is to request an official Loan Estimate from each one for the same loan type on the same day, then compare the origination charges, points or credits, APR and total closing costs. The interest rate on its own does not tell you which loan is cheaper.

What a Loan Estimate is

A Loan Estimate is a standard three-page form created under federal rules from the Consumer Financial Protection Bureau. Lenders must send it within three business days after you apply. Because every lender uses the same form, you can line them up and compare the same boxes.

• Page 1 shows the loan amount, rate, monthly payment, whether the rate is locked, and estimated closing costs and cash to close.
• Page 2 itemizes closing costs in sections A through J.
• Page 3 shows comparison figures, including the APR, the Total Interest Percentage and what you pay in the first five years.

Getting a Loan Estimate usually requires an application, which typically involves a hard credit inquiry. Credit scoring models generally treat several mortgage inquiries within a short shopping window as one, so collect your estimates within a few weeks.

What refinance closing costs include

Page 2 groups costs into sections. Here is what each means for a refinance.

Section A, Origination Charges. The lender's own fees, such as application, underwriting or processing fees, plus discount points if you buy them. This is the cleanest place to compare lenders, because these are the lender's choices.

Section B, Services You Cannot Shop For. Third-party services the lender picks, such as the appraisal, credit report, flood certification and tax monitoring.

Section C, Services You Can Shop For. Mostly title and settlement services: title search, lender's title insurance and settlement or closing fees. You can choose your own provider, and when refinancing, ask your title company about a reissue rate on title insurance.

Section E, Taxes and Other Government Fees. Recording fees and, in some states, transfer or mortgage taxes.

Section F and G, Prepaids and Initial Escrow. Prepaid interest, homeowners insurance and property tax deposits. These are not really costs of the refinance; you would pay them anyway, and your old escrow balance is usually refunded. Leave them out when comparing lenders.

Section J, Total Closing Costs. The bottom line, including any lender credits, which reduce your costs in exchange for a higher rate.

Points and lender credits

Points and credits are two sides of the same trade.

• Discount points are upfront fees that lower your rate. One point usually equals one percent of the loan amount.
• Lender credits do the reverse: you accept a higher rate and the lender covers some closing costs.

Sample rates published on lender websites often assume you pay points. Look at the assumptions before comparing a published rate with a quote.

Here is a hypothetical comparison, not an offer from any lender. Two Loan Estimates for the same $300,000 refinance:

In this hypothetical case, Lender 1 costs about $4,295 in origination charges and Lender 2 about $0 after credits, a gap of roughly $4,300. Lender 1's payment is about $74 lower each month, so it takes about 58 months to make up that difference. If you expect to keep the loan for less than about five years, Lender 2 is cheaper in this hypothetical.

How to compare Loan Estimates step by step

1. Make the requests identical. Same loan type, term, loan amount, and lock period, requested on the same day. Rates change daily, so estimates from different days are not comparable.
2. Check the rate lock. Page 1 shows whether the rate is locked and until when. An unlocked rate can change.
3. Compare Section A first. It is the lender's own pricing, including points. Big differences here are real differences between lenders.
4. Look at points and credits together. Turn each offer into "rate plus net upfront cost" and run the break-even math from our refinancing break-even guide.
5. Compare Section B and C, but expect less variation. You can shop Section C services yourself.
6. Ignore prepaids and escrow when deciding which lender is cheaper.
7. Check the APR on page 3. The APR folds in many fees and points. A lower APR usually signals a cheaper loan over the full term, but it assumes you keep the loan for its full life.
8. Look at "In 5 Years" on page 3. It shows what you would pay in principal, interest, mortgage insurance and loan costs in the first five years, which is often a more realistic horizon than the full term.

Watch for these

• No-closing-cost offers. The costs are covered by a higher rate or added to your balance. Compare the APR and five-year cost.
• Rolled-in costs. Adding costs to the loan lowers cash to close but raises your balance and interest.
• Prepayment penalties. Page 1 says whether the loan has one. Most refinance loans do not, but check.
• Mortgage insurance. FHA loans carry mortgage insurance premiums; conventional loans with less than 20 percent equity usually carry private mortgage insurance.
• Lender quotes that are not Loan Estimates. Use them to narrow your list, but make the final choice from Loan Estimates.

After you choose

Lock your rate in writing, keep sending documents promptly, and compare your Closing Disclosure with your Loan Estimate when you get it, at least three business days before closing. Ask the lender to explain any increase. For most refinances of a primary home, federal rules also give you a three-day right to cancel after signing.

To start, see our comparison of mortgage refinance lenders, including which ones offer a quote with a soft credit inquiry or no credit impact. Rates and fees are set by each lender and change daily, and your home secures the loan, so take the time to compare.