Refinancing a mortgage can cost as much as 3 percent to 6 percent of the amount borrowed, or $4,500-$9,000 to set up payments on a debt of $150,000, according to BSCAlliance.com. That estimate includes a $75-$300 application fee, a $150-$400 appraisal, a $175-$350 home inspection, $75-$200 for lenders' attorneys fees and other charges.
Companies such as INGDirect.com don't charge application, processing or other fees, lowering the cost of refinancing to about $1,500-$2,500. The trade-off is usually slightly higher interest rates.

What should be included:

Refinancing simply means replacing your current mortgage with a new one that has (you hope) better terms, such as a significantly lower interest rate, avoiding a balloon payment, cutting total costs by repaying the loan more quickly or other factors. FederalReserve.gov gives step-by-step instructions for finding the best possible mortgage, including a glossary of common terms and a detailed worksheet for comparing potential mortgage offers.
Some company-sponsored online mortgage "calculators" give a somewhat rosy view of the benefits of refinancing; MtgProfessor.com lists the payoffs and potential hazards of refinancing, and provides a break-even calculator to accurately assess your situation. This site also provides a range of mortgage calculators for almost every possible circumstance.
Traditional mortgage brokers make a profit by marking up the wholesale mortgage rates and consumers don't know the true cost of the loan until after the application is submitted. A new trend is upfront mortgage brokers, who disclose their total fee in advance, in writing; Sideroad.Com gives an overview.

Additional costs:

Some "predatory lenders" urge refinancing when it's not in the homeowners' best interests or charge fees for unnecessary or nonexistent products or services; HUD.gov lists tips to avoid loan fraud.

Discounts:

Refinancing some existing FHA mortgages can be streamlined, which means less documentation (such as no appraisal and therefore no appraisal fee)--but setting up the new mortgage still costs money. The amount depends on the size of the loan and the lender's terms.
Your current loan payment may include mortgage insurance, which covers your lender, not you, and runs $500-$1,200 annually for a $200,000 mortgage You might be able to cancel this insurance when refinancing if your equity in your home is more than 20 percent; MtgProfessor.com gives an overview.

Shopping for refinancing a mortgage:

MtgProfessor.com gives a quick overview of possible hazards and four approaches: responding to a solicitation, using an upfront mortgage broker, using a fixed-market lender and shopping online. Some websites suggest applying to your current lender first, because the it will offer the best deal in order to keep your business.
Sites such as MortgageLoan.com and LendingTree.com provide several quotes. Be sure an online broker represents a number of lenders and not just one; Sideroad.com gives tips and guidelines for using online services.
The Upfront Mortgage Brokers Association explains this type of service and providers referrals to its members.

Article updated November 2006