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Is A No-Closing-Cost Refinance The Best Option For You?

If you are thinking about refinancing your mortgage but lack the closing costs funds, then a no-closing-cost refinance may be the loan option you need to get it done. Read on to learn more about what a no-cost refinance is and how you can qualify for one. 

What Happens In A No-Closing-Cost Refinance? 

Simply put, a no-closing-cost refinance is a home loan where you don’t have to pay your closing costs upfront the way you typically would. 

This doesn’t mean that your loan provider waives your closing costs or pays for them for you. Rather, the closing costs are instead included in your loan, allowing you to pay them in monthly installments.

This convenience isn’t without a few pitfalls. In exchange for avoiding upfront costs, you may be charged a higher interest rate, and your monthly payments may be higher than they would without the closing costs added onto the loan. But still, avoiding the upfront costs is a convenience that many homeowners desire and can benefit from. 

What Costs Are Dispersed In Your Loan Repayment Plan?

Closing costs are made up of various expenses that accompany the refinancing of a mortgage, such as:

Lender Fees

The amount varies depending on the lender and the type of loan. Lender fees are a catch-all term that may include fees for processing, origination, and prepaid interest on your first month’s payment.

Homeowner Fees

As a homeowner, you’re probably familiar with these fees. But as a quick refresher, monthly obligations as a homeowner will include:

  • Property Taxes

  • Homeowners Association Fees

  • Homeowners Insurance

Third-Party Fees

Your loan provider outsources services when you get a mortgage, and your closing costs pay for these fees, including:

 

  • Title Insurance Fees

  • Appraisal Fees

  • Credit Score Report Fees

Mortgage Points

Some lenders give you an option to pay mortgage points or discount points. Paying this fee will reduce your interest rate and monthly payment.

Situations Where a No-Closing-Cost Refinance Makes Sense.

If you are planning to sell your home within a 5 year period, a no-closing cost refinance may be a great option.

Typically, a loan with a higher interest rate will cover the amount you owe in closing costs within the 5 year period. In this way, you get to avoid paying closing fees upfront and you won’t stay in the property long enough to pay more interest.

For homeowners who plan to renovate the home but lack the budget for the project, a no-closing cost refinance also makes sense.

Paying for a loan with higher interest to avoid closing costs may be less costly in the end than applying for a home equity loan to fund the renovation.

Thinking About Refinancing Your Mortgage?

Are you planning on refinancing your mortgage but lack funds to pay for closing costs?

Our team of home loan advisors can help you explore your refinancing options like a no-closing-cost refinance.

We can provide a detailed analysis of your closing costs so that you can see how much you are paying over the life of your loan to help you determine if paying for the closing costs upfront is better than rolling over the costs.

Give us a call and talk with our loan advisors today! We’ll be glad to help you out.