Refinance rates today
Is it a good time to refinance? Compare current refinance rates and learn more about how refinance rates work to decide if you’re ready.
Emily Moore
Closing costs are a significant, yet often forgotten, financial burden homeowners face when refinancing their mortgage. These costs can prohibit some homeowners from moving forward with refinancing at a lower rate and potentially saving money with each mortgage payment.
Fortunately, some lenders let you skip the closing costs upfront by getting a no-closing-cost refinancing loan.
In this article, we’ll explore how no-closing-cost refinances work, consider the pros and cons and look at a few other ways you can reduce or eliminate specific closing costs.
A no-closing-cost refinance saves you closing costs upfront — typically
2% to 6% of the total loan amount.
Normally, mortgage refinancing loans require you to pay various closing costs, such as processing fees, appraisal fees and attorney fees. Usually, you have to pay these upon closing on the loan.
A no-closing-cost refinance is a type of mortgage refinance loan that doesn’t charge you any of these at closing.
However, you aren’t off the hook for these expenses — the lender will usually include them in your total refinancing loan balance or raise the interest rate to compensate.
Still, no-closing-cost refinances prevent you from having to pay these costs immediately. This can be helpful for homeowners who are tight on cash and refinancing to lower their monthly payments or who want to save their money for other spending goals.
On the other hand, regular refinances might be a better option if you can afford the closing costs comfortably and just want to cut your monthly payment as much as possible.
A no-closing-cost loan and rolled-closing-cost loan are the same thing. No-closing-cost loans don’t truly get rid of closing costs; instead, the lender rolls the costs into your loan balance or, sometimes, your interest rate. Thus, you may hear lenders refer to these costs as “rolled” closing costs.
Closing costs are an assortment of fees and expenses you’ll pay to close on a refinancing loan. As a general rule, these tend to be 2% to 6% of the total loan amount.
For example, if you’re refinancing a mortgage with a $100,000 remaining balance, your closing costs could range from $2,000 to $6,000, depending on your lender and what services are involved in closing the refinancing loan. Some fees are negotiable, while others are not.
Here are some negotiable closing costs for refinancing loans:
Here are some refinancing closing costs you usually cannot negotiate:
In general, any fees set by the government are nonnegotiable. Fees that the lender charges usually have some wiggle room.
Although you still pay closing costs in some form on no-cost refinancing loans, there are some benefits to rolling everything into one sum of money — but there are some drawbacks to consider as well.
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 you’re 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.
A no-closing-cost refinance loan can be a beneficial financial option for the right kind of homeowner. If you don’t have much cash on hand, or if you’d rather put the cash you do have to a different use, the no-closing-cost option may be your best bet. You just have to make sure you’re still able to accomplish your original refinancing goals — whether they include a lower monthly payment, a longer term or something else.
No-closing-cost refinancing is not for everybody. The payment amount is higher than if you pay the closing costs upfront. Homeowners focused on minimizing their monthly payment above all else might do better to pay the closing costs upfront and secure a smaller loan with a lower rate.
Is it a good time to refinance? Compare current refinance rates and learn more about how refinance rates work to decide if you’re ready.
Emily Moore
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