No Closing Cost Refinance (What is It, and is It for You?) - BTN Realty (2024)

FAQs

No Closing Cost Refinance (What is It, and is It for You?) - BTN Realty? ›

A no-closing-cost refinance works like a traditional rate-and-term refinance — replacing your old mortgage loan with a new mortgage — only instead of paying for closing costs up-front, those fees are rolled into your mortgage principal and paid off over time.

A no closing cost refinance simply disperses the fees elsewhere in your loan. You can either increase your interest rate or increase your principal. With an interest rate increase, you are agreeing to a higher interest rate. This might make sense if you don't plan on staying in this home long-term.

But, like financing a new home purchase, one of the requirements for refinancing is that homeowners pay closing costs on the new loan. In the case of a refinance (or “refi”), you can expect to pay about 3% – 6% of the loan amount in closing costs.

Many lenders offer no-closing-cost mortgages, meaning you don't need to pay the closing costs upfront when you buy a new home. Instead, closing costs are rolled into the loan balance or compensated for in the form of a higher interest rate. On the plus side, no-closing cost mortgages mean less immediate outlay.

No-closing-cost refinance: These loans come with no upfront costs, but that doesn't mean it's free to refinance. Instead, you'll typically agree to a slightly higher interest rate or have the closing costs rolled into your loan to avoid the out-of-pocket expense.

When you refinance, you are required to pay closing costs like those you paid when you initially purchased your home. The average closing costs on a refinance are approximately $5,000, but the size of your loan and the state and county where you live will play big roles in how much you pay.

The short answer is yes – when you're buying a home, you may be able to negotiate closing costs with the seller and have them cover a portion of these fees.

However, the lender isn't going to offer you discounts if you don't ask for them. To potentially reduce some of the closing costs of a refinance, ask for closing costs to be waived. The bank or mortgage lender may be willing to waive some of the fees, or even pay them for you, to keep you as a customer.

Why does refinancing cost so much? Closing costs typically range from 2 to 5 percent of the loan amount and include lender fees and third-party fees. Refinancing involves taking out a new loan to replace your old one, so you'll repay many mortgage-related fees.

Refinancing will hurt your credit score a bit initially, but might actually help in the long run. Refinancing can significantly lower your debt amount and/or your monthly payment, and lenders like to see both of those. Your score will typically dip a few points, but it can bounce back within a few months.

What do closing costs not include? ›

Closing costs don't include your down payment, but you may be able to negotiate them. Just be aware that your negotiating power can depend heavily on the type of market you find yourself in (like a buyer's or seller's market).

A lower fixed interest rate leads to lower monthly mortgage payments. However, it may lead to higher closing costs due to discount points charged by lenders. Conversely, a higher interest rate could mean lower closing costs but result in higher monthly payments over time.

No-cost mortgage (or no-cost refi) is a term for a specific type of mortgage loan that relieves borrowers of certain closing costs. Instead, these costs are either added to the borrowed amount or the borrower pays a higher interest rate.

Key Takeaways

Don't refinance if you have a long break-even period—the number of months to reach the point when you start saving. Refinancing to lower your monthly payment is great unless you're spending more money in the long-run.

According to Freddie Mac, average refinance closing costs are about $5,000. But don't put too much weight on this number: The cost to refinance your mortgage could be lower, or it could be a lot higher depending on the loan amount and other factors.

MBA: Rates Will Decline to 6.4% In its April Mortgage Finance Forecast, the Mortgage Bankers Association predicts that mortgage rates will fall from 6.8% in the first quarter of 2024 to 6.4% by the fourth quarter. The industry group expects rates will fall below the 6% threshold in the fourth quarter of 2025.

The upside of writing a check for your closing costs when you finalize your mortgage is that you don't have to take on more debt when you buy a home. If you roll your closing costs into your loan, you pay interest on them. Pay them upfront, and you don't, which keeps your monthly payment lower.

A no-closing-cost mortgage costs more in the long run than a mortgage with upfront closing costs. Whether you pay a higher interest rate or roll your closing costs into the mortgage, your monthly mortgage bill will be higher, which may affect your ability to save money or invest in the future.