Can You Refinance With No Closing Costs? A Guide To A No-Closing-Cost Refinance

If you are looking to refinance your current mortgage, a no-closing-cost refinance is enticing. Since closing costs can quickly add up to thousands of dollars on a refinance, the possibility of skipping that expense piques the interest of most homeowners looking to refinance. We will explore how a no-closing-cost refinance works.

What Is A No-Closing-Cost Refinance?

A no-closing-cost mortgage is a refinancing option that doesn’t come with upfront closing costs. This makes refinancing less of a burden on your immediate budget.

Homeowners without the cash to complete a traditional mortgage refinance can use a no-closing-cost option. Instead of paying the lender a large lump sum to finalize the refi, the lender will roll the costs into your principal amount or compensate with a higher interest rate.

With a no-closing-cost refinance, the borrower essentially spreads out the cost of the refinance costs.

How Does A No-Closing-Cost Refinance Work?

A no-closing-cost refinance means there are no upfront closing costs to factor into your budget. But as with all financial transactions, you can’t move forward without any costs. Instead of upfront costs, the lender will look for other ways to recoup costs with this type of mortgage refinance.

The lender can compensate for the lack of upfront costs with a higher interest. Another way to compensate for the cost is to roll the traditional closing costs into your loan principal and increase your loan balance.

In either scenario, the borrower will find higher monthly payments. But you won’t have to fork over funds upfront.

Here’s a look at how these costs can play out over a 30-year loan term:

Which Closing Costs Can Be Rolled Into The Loan Amount In A No-Closing-Cost Refinance?

If you are opting for a no-closing-cost mortgage refinance, the types of closing fees that can be rolled into your loan amount will vary based on the lender. But here’s a look at some of the costs you might be able to roll into the loan:

• Loan origination fees: The lender charges this fee to prepare your loan. Generally, this includes your application fee, underwriting fees and more.
• Appraisal fee: Mortgage refinances often require a professional home appraisal, which often runs between $600 – $2,000.
• Title fees: A title search and title insurance are necessary for a home refinance transaction.
• Credit check: The lender will verify your credit score. Typically, this costs around $25 to $50.
• Mortgage insurance: Some types of home loans come with an upfront mortgage insurance premium. For example, the Federal Housing Administration charges 1.75% of the loan amount as an upfront mortgage insurance premium.
• Funding fee: Homeowners refinancing a VA loan will have to pay a funding fee of up to 3.6% of the new loan balance at closing. But some veterans who qualify can skip the VA funding fee during a refinance.

Ultimately, the range of closing costs usually adds up to 3% to 6% of your loan balance. Depending on your remaining loan balance amount, that can be a significant expense. For example, you can assume closing costs between $6,000 and $12,000 on a $200,000 home loan.

Pros And Cons Of A No-Closing-Cost Refinance

As with all financial decisions, a no-closing-cost refinance comes with advantages and disadvantages to consider.

Pros

Let’s take a look at the advantages of a no-closing-cost loan first:

• Less cash required upfront: You can take advantage of lower refinance rates without a need to save up the cash.
• Protects your savings: If you have savings on hand for emergencies or home repairs, you can keep those funds available.
• Allows homeowners to tap into home equity: In some cases, you might be able to pull the cash value out of your home’s equity. This can make a big difference in your household finances.
• Suitable for homeowners who plan to move: If you plan to move in the near future, then you might end up saving on interest payments. But you won’t have to sink money into the upfront closing costs.

Cons

Now let’s take a look at some of the disadvantages:

• Higher monthly mortgage payments and interest: When the closing costs are rolled into the loan or compensated for with a higher mortgage rate, you’ll face higher monthly mortgage payments.
• More expensive in the long term:  A no-closing-cost refinance usually leads to higher costs over the life of the loan.
• Not beneficial for homeowners who plan to stay long term: While you can save on upfront costs, you will likely pay more over the life of your mortgage loan. With that, homeowners who intend to stay in the house could end up paying more.

No-Closing-Cost Refinance FAQs

You have questions about no-closing-cost refinances. We have answers.

Can I refinance my mortgage with no closing costs?

Yes, it’s possible to refinance your mortgage without any upfront closing costs through a no-closing-cost refinance. However, the lender will likely compensate for the lack of upfront closing costs by rolling the fees into the loan amount or offering a higher interest rate.

When is a no-closing-cost refinance a good idea?

A no-closing-cost refinance is especially useful for homeowners that plan on selling their homes in the relatively near future. For example, if you plan to stay in your home for less than 5 years, then you’ll likely sell before you pay thousands in interest for the entire loan term.

Who offers a no-closing-cost mortgage refinance?

Rocket Mortgage^® is one lender that offers no-closing-cost mortgage refinances. However, there are other lenders out there. Take the time to shop around for a lender that offers you the best deal.

How do I refinance my mortgage with no closing costs?

You can refinance your mortgage with no closing costs by choosing to work with a lender that offers no-closing-cost mortgages. In general, the lender will either roll the closing costs into the total loan amount or compensate for the convenience with a higher interest rate. Either way, homeowners who opt for a no-closing-cost mortgage may end up paying more over the life of the loan.

What is the difference between a loan with closing costs and a no-closing-cost refinance?

The Bottom Line

If you aren’t planning on staying in the home forever, a no-closing-cost loan could be the right move. But if you don’t want to sell anytime soon, then this refinance could cost you thousands of dollars over the life of the loan.

Even if a no-closing-cost loan isn’t right for you, a refinance with regular closing costs might be. Although you’ll have to pay more upfront, you can save thousands while paying off the loan. Both refinancing options are available through Rocket Mortgage.