Refinancing your mortgage can be an important tool to reach your financial goals, whether you're looking for a lower mortgage rate, to reduce your monthly payment or to borrow against your home equity.
However, you'll have to cough up a hefty amount of cash to do so in most cases. Closing costs on mortgage refinancing can be 3% to 6% of your total loan amount, according to Freddie Mac. This covers recording, appraisal, origination and other fees needed to complete the refinance.
On a $300,000 mortgage, that can be as much as $18,000. That's not feasible for everyone – in fact, 63% of Americans are living paycheck to paycheck, according to the CNBC and SurveyMonkey Quarterly Money Survey, released on July 20. This can leave many in a pickle: fork over a lot of cash to lower costs or save the money and keep the high payments.
It's important to make sure you have cash on hand to close on the product and that you're saving more than you're spending — if you're refinancing to decrease your expenses.
Use CNBC Select's mortgage refinance calculator to determine whether you have the necessary cash and that you'll save more than you're spending. It can also help you figure out what you'll save each month and over the life of the loan, so you can make a decision about whether it's right for you.
Not all lenders are created equal when it comes to refinancing costs, so it's important to get several quotes to make sure you're getting the best deal.
Plus, some lenders offer structures that help offset refinancing costs. For example, if you're looking to get a lower rate, some lenders will allow you to do so without refinancing.
Or, if you don't have the cash up front, some lenders will allow you to wrap the closing costs into the loan principal so you pay it back over time. However, you'll be paying interest on those closing costs, so be sure the extra savings outweigh this total amount.
Below, we outline lenders who offer more affordable ways to refinance, plus the best way to save for refinancing closing costs.
If you don't have a lot saved up but know you'll get a rate that will significantly lower your monthly payment and what you'll pay over the life of the loan, see if Better Mortgage is a good match. Better consistently offers below-average rates and allows you to roll your closing costs into your loan.
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Annual Percentage Rate (APR)- Apply online for personalized rates; fixed-rate and adjustable-rate mortgages included
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Types of loans- Conventional loan, FHA loan, Jumbo loan and adjustable-rate mortgage (ARM)
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Terms- 10–30 years
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Credit needed- 620
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Minimum down payment- 3.5% if moving forward with an FHA loan
Terms apply.
If you're looking to take a mortgage out now and refinance later when rates are lower, Navy Federal Credit Union is a great option. Its No-Refi Rate Drop allows borrowers to pay $250 to lower their rate without refinancing their entire mortgage. Additionally, NFCU offers particularly competitive VA loan rates, which could help you save money if you're eligible for this type of loan.
LoanDepot is another good choice for those looking to refinance on a budget. If you take out a loan with this lender, they will waive all fees if you decide to refinance with them. While this won't mean you can refinance for free, you won't have to pay certain portions of the closing costs like origination, underwriting and application fees.
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Annual Percentage Rate (APR)- Apply online for personalized rates
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Types of loans- Conventional loan, FHA loan, Jumbo loan, VA loan, renovation loan, HELOC and adjustable-rate mortgage (ARM)
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Terms- 10–30 years
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Credit needed- As low as 500 for FHA loans with a 10% downpayment; 580 for FHA loans with a 3.5% down payment
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Minimum down payment- Starting at 3.5% for an FHA loan
Terms apply.
If you're not refinancing now but want to make sure you're prepared to do so when rates cool off, we recommend saving each month in a high-yield savings account
That way, your money will grow more than it would with a traditional account, but you'll still be able to easily access your funds if necessary.
For the highest yield, we recommend the EverBank Performance℠ Savings and Happen Bank LevelUp Savings. Both options will help you maximize earnings on your savings while also providing features like an ATM card and minimal transaction restrictions.
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Annual Percentage Yield (APY)- 3.90% APY
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Minimum balance- None
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Monthly fee- None
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Maximum transactions- You may conduct up to 20 external transfers per day, subject to a maximum of 10 transfers that pull deposit funds from a linked external account into your accounts at EverBank and a maximum of 10 transfers that send deposit funds from your accounts at EverBank to a linked external account, and up to 50 total external transfers per month.
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Excessive transactions fee- None
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Overdraft fees- N/A
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Offer checking account?- Yes
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Offer ATM card?- Yes
Terms apply.
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Annual Percentage Yield (APY)- 4.00% (with monthly deposits of $250 or more), or 3.00%
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Minimum balance- None
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Monthly fee- None
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Maximum transactions- None
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Excessive transactions fee- None
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Overdraft fees- N/A
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Offer checking account?- Yes
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Offer ATM card?- Yes
Terms apply.
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Editorial Note:Opinions, analyses, reviews or recommendations expressed in this article are those of the Select editorial staff’s alone, and have not been reviewed, approved or otherwise endorsed by any third party.