Friday, September 22, 2023

Can I Refinance My Mortgage With No Closing Costs

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How Do Mortgage Lenders Do No Closing Cost Refinances?

If you have an existing mortgage backed by the Department of Veterans Affairs, or VA, you can refinance with the Interest Rate Reduction Refinance Loan , which typically does not require a credit score or appraisal. Plus, theres no annual cost to guarantee the loan. You can refinance up to 100% of the propertys value with a VA loan. Youll have to go through a private bank, mortgage company or credit union to get this VA loan.

Refinancing To Consolidate Debt

If you have enough equity in your home, you might be able to use built-up equity in your home to pay-out high-interest debt through a mortgage refinance. For example, if you have a number of outstanding debts, such as a car loan, a line of credit, or credit card bills, you may be able to consolidate this debt through the variety of mortgage refinance options available.

How To Avoid Closing Costs When Refinancing

Lenders can offer no-closing-cost loans because they can roll the costs into the loan balance or interest rate. This saves you money upfront but may cost you more in the long run. There are a couple of tactics you can use to reduce your closing costs in the first place.

First, you can ask the lender to waive some of the fees. If youre a loyal customer who makes payments on time, the bank may be willing to cut you a break to keep you as a customer. In particular, you may be able to get the lender to waive your appraisal fee if you had an appraisal performed recently.

You can also comparison-shop for the best deals on third-party services to cut those fees, then negotiate the closing costs downward.

Aside from those tactics, raising your credit score and reducing your debt-to-income ratio will lead to a better interest rate, which helps you offset the increased loan balance or interest rate on a no-closing-cost refinancing loan.

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Closing Cost Fees Youd Typically Pay

The closing costs for refinancing are similar to the closing costs for an original mortgage. Youll have to pay for an appraisal and loan origination fees, as well as application fees, title search, underwriting and other lender fees.

In most cases, these fees total at least 2% of your loan amount, and often up to 5% or more. Those costs can make many homeowners hesitate before refinancing, especially in an uncertain economy. Thats why a no-closing-cost refinance can be tempting.

Dukes recommends shopping around, as some lenders offer more in lender credit for the same increase in rate. Others may have lower lender fees, so the closing costs added to your mortgagealso known as a lender creditwould be lower.

How To Know If A No


The right decision about a refinance with no closing costs really depends on your specific situation. For instance, look at how the refinance will affect your monthly financial situation and how much more youll end up paying in interest by taking a lender credit for your closing costs.

Keep in mind that if you pay closing costs up front, it usually takes at least a few years to break even with the savings on a lower interest rate. So if you plan to sell your home within a few years, paying closing costs upfront may not result in a net savings.

If you are able to improve your rate, lower your monthly payment and do so with limited cash on hand, then you should take advantage of that, Dukes says. This is especially important if you can dramatically improve your rate, thus your monthly cash flow obligations.

Also, consider how long you will be in your home. If you are planning to only stay in your home for a short time, and the increase in payments paid over that estimated time because of a higher rate is less than the closing cost, then you should go with the no closing cost refi, Dukes says.

If, on the other hand, you are living in a home you plan on staying in for many years, youll need to weigh the additional monthly cost of the higher rate against the closing cost you could pay out of pocket now.

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Thoughts On The No Cost Refinance: How It Works And What It Really Costs

  • Nancy

    We have a 30 year loan with an interest rate of 4.25. 26 years left on the loan. Owe $40,000.00. Would a no cost refinancing be a good option? Thank you

  • Nancy,

    It depends what your goal is and what the new interest rate will be. You arent that deep into the loan so restarting it may not be an issue, though youll want to determine the savings based on how long you plan to keep the new loan.

  • Anna

    Hi, just spoke to the mortgage associate regarding No cost refinancing. Current balance is 150K at 5%, was offered 3.875% at no cost + third party fees paid by the bank but the balance will be approximately $152K due to payoff amount + escrow + 15days of Interest chargeis this real? What is the actual benefit to the bank?

  • Colin Robertson


    Banks can offer no cost loans because they still make money by selling and/or servicing the loans. It doesnt matter what your current interest rate is as long as they can make money on the new loan. Keep in mind that if you pay those closing costs yourself the interest rate would likely be lower, such as 3.5% for example.

  • Bob
  • Colin Robertson


    Why would you be dreaming? The LTV with the cash out would still be below 80% based on your numbers, though your rate may not be much better than 4.25%. Could also explore a second mortgage if the rate on the first is worse.

  • Michael,

    Sure it can benefit the borrower and still be no cost, I just like to point out that there is indeed a cost, and the rate could be even lower.

  • Cathy
  • Eddie
  • Do You Have To Pay Closing Costs When Refinancing

    The good news is that some closing costs are negotiable, especially the fees charged directly by your mortgage lender. These include the origination, application, and underwriting fees.

    However, your lender wont be able to lower fees charged by third parties such as the survey, home appraisal, or recording fees. Lenders simply pass these fees along to you, the consumer.

    You should always get multiple mortgage quotes from at least three lenders, including your current mortgage company. Then compare your Loan Estimates to find the lowestcost option.

    Comparing upfront fees and interest rates can help you save money. And if you find a lender with a cheaper loan origination fee, application fee, or underwriting fee, this sways the negotiating power in your favor.

    You can refinance with the lender offering the lowest rate and fees at face value. Or you can use your other offers as leverage for negotiation.

    Your current lender might match the competitors fees or waive certain refinance costs to keep you as a customer.

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    Closing Costs: What To Expect Wells Fargo

    Within 3 days of submitting a complete mortgage application, youll get a Loan Estimate that will give you a better idea of how much you need to pay in closing

    Like every mortgage, the VA loan comes with closing costs and fees. VA loan closing costs average anywhere from 3 to 5 percent of the loan amount,

    May 25, 2021 With no-closing-cost refinancing you avoid upfront fees, but youll pay for it with a higher Average Closing Costs When Refinancing.

    Your total estimated closing costs will be $7,125 ÷ Loan Info ÷ Taxes & Insurance ÷ Origination Fees ÷ Other Settlement Charges.

    See how much you could pay in closing costsor settlement chargesbased on your estimated interest rate and loan terms. After you apply for your loan,

    Average refinance closing costs, no cost refinancing, and more.

    How much higher depends on your loan amount. The lower your loan amount, the higher the rate adjustment will be to cover your closing costs. In general, you can

    Mortgage closing costs can add up, whether you pay them up front or over time the national average cost of a $200,000 refinance was $3,754 in 2012,

    What Are Closing Costs? ÷ What Fees Can I Expect at Closing? ÷ What Is a Good Faith Estimate? ÷ How Do I Calculate Closing Costs and What Should I Expect to Pay?

    Are There Other Ways To Get A Low

    No Closing Cost Mortgage?

    If youre thinking that a no-closing-cost mortgage isnt the right option for you, there are other ways to save on the upfront costs to make sure you get a low-closing-cost mortgage.

    You can try negotiating with your lender, as some fees can be either waived or reduced. Talking with your lender can give you a better idea on your options, and you might find a way to reduce upfront costs. Many cities and states also offer first-time home buyer programs to help assist with down payments and closing costs.

    Another option is to ask the seller to cover the closing costs for you. Depending on the situation, some sellers may agree to help by covering some of the closing cost.

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    When To Choose A No

    Its important to figure out how long you plan to stay in the property and what your breakeven timeline on your potential closing costs might be.

    • When it makes sense: If youre planning to move in a year and it will take two to three years to break even on your closing costs, youll still realize a net savings while you stay put, even as you pay a little more in interest on your loan than you would otherwise.
    • When it doesnt make sense: If you plan to stay in the property for decades and youll break even on your upfront closing costs in just two or three years, then a no-cost closing doesnt make sense, because youll wind up paying more in the long run.

    The additional interest on the loan will add up over time, says Greg McBride, CFA, Bankrate chief financial analyst. And the longer you have that loan, the higher that cost will go. If you have that loan for decades to come, you may end up paying those closing costs a couple of times over.

    If you want your lender to roll the closing costs into the refinanced amount, you need to make sure that your total payments are less than what they would have been had you paid the closing costs upfront. Thats not always the case.

    Rolling your closing costs into your new mortgage may also affect your loan-to-value ratio, McBride says. This could reduce your home equity to the point where you are now required to pay private mortgage insurance , which adds to your monthly payment.

    Refinance To Lower Your Mortgage Rate

    To determine if you can save money with a lower mortgage rate, use our calculator to compare the monthly interest savings against the cost to refinance. As most mortgage brokers and lenders will cover your legal costs, the main cost you need to worry about is your break of mortgage penalty, or prepayment penalty. This penalty is charged by your lender for breaking your mortgage contract early and is based on your original contract date, current mortgage balance, mortgage rate, and other factors.

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    How To Limit Out

    Besidesnegotiating with the seller to pay for some of the closing costs, you can cut your expenses by avoiding points, which reduce your interest rate but cost money upfront.

    In addition, there are some special circumstances in which a borrower can be exempt from the funding fee. These include if the borrower is:

    • Living with a disability connected to their service and being compensated for the disability
    • Living with a disability connected to their service and receiving military retirement pay
    • An active-duty Purple Heart recipient
    • A surviving spouse whose partner died in service or from a service-related disability
    • Eligible to be compensated due to a pre-discharge

    You can also try to snag more savings by asking your mortgage lender if it has any discounts or rebates some might even waive certain costs if you ask. If possible, try to close your mortgage towards the end of the month, as well. This reduces the amount of per-diem interest youll have to pay.

    There might also be some closing cost and down payment assistance programs available at the state level specifically for veterans. Some cities and counties offer programs of their own, as well. Ask your lender about availability.

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    Its Becoming Increasingly Common How To Refinance Your Home And Spend $0 At Closing To Do It

    How Often Can I Refinance My Mortgage?
    • Resize icon

    With some mortgage refi rates below 3%, many people are likely pondering a refi, but wonder: Can you refinance your home without any money coming out of your pocket at the closing? The short answer is yes, but you will end up paying those closing costs down the road.

    Closing costs associated with refinances tend to run about 2-5% of the total principal amount that you owe, and the average closing costs on a refi are upwards of $5,700, according to data from fintech firm ClosingCorp. Closing costs are generally made up of a variety of fees ranging from an origination fee, which the lender charges upfront to process the loan application an appraisal fee title search credit report fee and more. Needless to say, coming up with an out-of-pocket lump sum might make obtaining a refinance difficult for some people which is why a no-closing-cost refinance can be a helpful option.

    But in some cases, those fees can be rolled into the loan in whats called a no-closing-cost refinance meaning borrowers dont have to pay anything upfront out-of-pocket to refinance. Of course, no-closing-cost refinances dont mean a borrower is off the hook for all expenses, instead theyre just transferred to the principal or exchanged for a higher interest rate.

    Pros and cons of a no-closing cost refinance

    Can a no-closing cost refinance save me money?

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    What Are The Benefits Of A No

    The main benefit of a no-closing-cost refi is that you dont have to make a lump-sum payment on your closing expenses when you finalize the loan. Refinancing costs vary depending on how much you owe on your mortgage and where your home is located. On average, a mortgage refinance costs about $5,000, according to Freddie Mac, the federally chartered mortgage investor. Thats a significant amount of money.

    If youd otherwise have to save up for a while to pay closing costs, a no-closing-cost loan could allow you to refinance right away, which could help you save money in the long run.

    If interest rates are lower now than when you took out your mortgage or if your credit scores have gone up, you might be able to refinance with a lower interest rate and start saving money immediately. If you have an adjustable-rate mortgage and your rate is about to rise, you might be able to avoid paying more in interest if you refinance with a fixed-rate mortgage or an ARM with a lower cap before that adjustment takes effect.

    Another potential benefit is that if you dont have a prepayment penalty and youre planning to move within five years, refinancing without closing costs may help you skip the upfront payment while youll only pay a bit more each month for a few years.

    How To Choose Between Lender Credits And Rolling In Closing Costs

    To determine whether taking lender credits or rolling in closing costs makes more sense, you have to figure out the short- and long-term impact of both. Using the earlier example, lets say your loan amount is $320,000 and your estimated closing costs are $6,400.

    This image is for illustrative purposes only.

    Impact of a higher interest rate versus a higher loan amount

    Scenario 1: Lender credits

    Your lender may allow you to take lender credits which will give you an interest rate of 4.375% over the life of your loan in exchange for paying no closing costs up front. Your monthly mortgage payments become $1,597, not including PMI, property tax or homeowners insurance.

    Scenario 2: Rolling-in closing costs

    If you wish to roll-in all of your closing costs, then youll have a higher loan amount, which we have rounded up to $326,550. However, your interest rate is lower and your monthly payments become $1,354.

    While the $243 difference in monthly payment between the 2 scenarios may seem relatively low, it adds up significantly over time. In fact, taking lender credits would be an additional $23,000 over the next 5 years.

    In this scenario, the math seems to support Scenario 2rolling in your closing costs. If you want help with any of this stuff, you can use our super simple refinance calculator to see how much youll pay in interest charges for both scenarios.

    Calculating your break-even point

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    What Is A No

    As the name suggests, a no-closing-cost refinance is a refinance where you dont have to pay closing costs when you get a new loan. But just because there are no upfront costs doesnt mean that your mortgage lender foots the bill for free. No-closing-cost refinances don’t get rid of a borrower’s expenses they only move them into your principal or exchange them for a higher interest rate.

    The simplest no-closing-cost mortgage refinance takes the amount that you would have paid during closing and tacks it onto your new mortgage. In other words, your lender adds the balance of your refinance closing costs to your principal or the unpaid balance of your loan. This increases your monthly payments but doesnt affect your interest rate.

    Your lender may also allow you to take a higher interest rate in exchange for waiving your closing costs. Your interest rate is the amount you pay to your lender per month for borrowing. Refinance interest rates depend on many different factors. A higher interest rate doesnt change your principal amount, but you’ll still pay more each month.

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