Closing costs are the charges and prepaid items that arise when a new loan closes. They apply to refinances just as they do to purchase loans, and they are an essential part of deciding whether a refinance is worthwhile. This guide describes the fee types that can appear, in general terms, without giving dollar figures, because the actual amounts depend on the lender, the loan type, the property, and your location.
Understanding closing costs starts with one distinction: some costs are lender charges for arranging and processing the loan, some are third-party charges for services the loan requires, and some are prepaid items that are not really fees at all, but money set aside for future obligations. Your lender will provide disclosures that list these items for your specific loan, and you should review those disclosures line by line before closing. Cincinnati Refinance is an information resource, not a lender, and this guide is educational only.
Lender Charges
Lender charges can include an origination charge for creating the loan, an application or processing charge for handling the paperwork, and an underwriting charge for assessing the application and the risk involved. Some lenders also charge for a rate lock, or for discount points — an optional charge paid to change the loan’s rate structure. Whether any of these charges apply, and how they are structured, varies by lender, so it is worth asking each lender to explain its own charges in plain language.
One useful question is whether a lender’s charges are fixed or whether they change with the loan amount or with choices you make, such as paying points. Another is whether any charge is optional, and what you gain or give up by paying it or not paying it. Comparing lender charges on their own is not enough, however, because third-party costs and prepaid items also matter.
Third-Party Services
Third-party charges pay for services the loan requires from people other than the lender. An appraisal is a common example: a professional assessment of the property’s value, which the lender uses to confirm that the loan is supported by the property. A title search and title insurance are also common, covering the work of confirming that the property’s ownership is clear and protecting against certain title problems.
Other third-party services can include a credit report charge, a flood certification charge where applicable, a survey charge in some cases, and charges for recording the new loan documents with the local government. Some of these services you may be able to shop for yourself, depending on the loan and the lender’s rules — ask the lender which services you can choose a provider for, and whether choosing a different provider changes the cost.
Prepaid Items and Escrow
Prepaid items are amounts collected at closing for expenses that will come due soon after closing, rather than fees for a service. They can include prepaid interest for the period between closing and the first payment, as well as amounts deposited into an escrow account for property taxes and homeowners insurance. Escrow is a way of spreading those large annual bills across monthly payments, so you pay a portion each month and the lender pays the bills when they are due.
Prepaid items can make the amount due at closing look larger, but they are not the same as a fee the lender keeps. Ask the lender to separate prepaid items from true fees on your disclosure, so you can see what is a cost of the loan and what is money being set aside for your own future obligations.
Government and Program Charges
Some refinances involve government or program charges. For example, government-backed loans can involve guarantee or insurance premiums, such as the mortgage insurance premiums on FHA loans or the funding fee on VA loans, which are described in our FHA refinance and VA refinance guides. Recording charges paid to local government are another example. These charges depend on the loan type and the jurisdiction, and your lender’s disclosure should list them for your loan.
How Closing Costs Are Paid
Closing costs can be paid in different ways, and the method affects the loan. Some borrowers pay them from savings at closing. In some cases, costs can be financed into the new loan, which means borrowing more and paying interest on those costs over time. In other cases, a lender may offer a credit toward closing costs in exchange for different loan terms. Each approach has trade-offs, and the right one depends on your cash position, your plans, and the full terms on offer.
Whatever the method, the key step is the same: read the disclosure, ask about every line you do not understand, and compare the total costs across lenders on the same basis. Our guide to when refinancing makes sense explains how to weigh those costs against the benefit of the new loan.
Questions to Ask a Mortgage Professional
- What is the total of my closing costs, separated into lender charges, third-party charges, and prepaid items?
- Which charges can I shop for, and which are fixed by the lender or the program?
- How will the closing costs be paid, and what does that choice cost over time?
- Are any charges optional, and what do I gain or give up by paying them?
- What could change between this disclosure and closing?
When you are ready, request a refinance quote or call (859) 380-3873, and we will connect you with a mortgage professional. You can also return to the Refinance Options hub or explore rate-and-term refinancing and cash-out refinancing.
Cincinnati Refinance is not a lender, mortgage broker, or loan officer. The content on this site is educational information only and is not a loan offer, rate quote, or commitment to lend. We provide information and connect consumers with mortgage professionals; any loan is made solely by the lender you choose and is subject to credit approval and that lender’s terms.
Contact Cincinnati Refinance
355 Grand Ave, Cincinnati, OH 45205
Phone: (859) 380-3873
Email: info@cincyrefinance.com
Hours: Monday–Friday 7:00 AM – 9:00 PM