Refinancing means paying off your current home loan and replacing it with a new one. Some people refinance their mortgage to lower their monthly payments, pay off their balance faster, or cash in on their home equity. But while refinancing comes with several benefits, paying closing costs often prevents homeowners from taking the refinancing plunge.

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In this article, we’ll explain what it means to choose no-closing-cost refinancing. We’ll also give you some helpful tips on how to get the best deal on your new home loan.

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How Much Does Refinancing Usually Cost?

According to Freddie Mac, the average closing costs on a refinance can reach up to $5,000. The loan amount and the specific loan program will also influence how much you’ll need to pay.

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Closing costs typically cover the following:

• Appraisal fees
• Attorney fees
• Credit report fees
• Government recording costs
• Lender origination fees
• Mortgage insurance, if applicable
• Survey fees
• Title services
• Tax service fees
• Underwriting fees
• Deposits to set up an escrow account for the payment of taxes and insurance, if applicable

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What Is No-Closing-Cost Refinancing?

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The name “no-closing-cost refinance” can be misleading because it doesn’t actually mean that your new mortgage won’t come with additional charges or closing costs. It just means you don’t have to pay the closing costs upfront.

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Instead, you have the following option:

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Add The Closing Costs To Your Principal

You can ask the lender to add the balance of the closing costs to your requested loan amount. This will increase your monthly payments but won’t raise the interest rate. For example, if you get a $120,000 refinance with $3,600 in closing costs, your new principal will be $123,600.

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Is No-Closing-Cost Refinance Right For You?

No-closing-cost refinance isn’t for everyone. Here are ways you can tell if it’s right for you:

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You’re Short On Cash

If you’re already short on savings and wish to keep as much of your savings as possible, no-closing-cost refinancing can be a good option. That way, you don’t have to pay thousands of dollars upfront.

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Your New Mortgage Rate Will Be Lower Than Your Old Rate

Sometimes, the US Federal Reserve (the Fed) keeps interest rates at very low levels to encourage consumer spending during an economic recession. The best time to refinance your mortgage is when interest rates are at very low levels, especially if your original home loan comes with a higher interest rate than what is currently available.

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Note that even a drop of 1% in your interest rate can result in larger savings over time. This holds especially true if you still have a relatively large loan balance and a long remaining loan term. But if your loan balance is small, you may not actually save that much at all. Using a refinance calculator should help you see which option is better for you.  Wesley Mortgage can help you with determining the best option for you.

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You Don’t Plan To Stay At Your Current Home For A Long Time

If you don’t plan to stay in your home for a long time, no-closing-cost refinancing could save you money because you will be able to maintain your savings while reducing your upfront closing costs.

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Before making a decision, crunch the numbers with your lender or use a mortgage calculator. This should show you how much you’ll be charged for foregoing upfront costs as well as how much you can expect to pay monthly.

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Frequently Asked Questions On Refinancing:

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Does getting no-closing-cost refinancing mean I won’t pay closing costs?

Not exactly. No-closing cost refinancing only means you don’t have to pay closing costs immediately at the time of loan closing, meaning less cash you will have to bring to the mortgage loan closing. The lender may add the closing costs to your principal.

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How can I get a lower refinance rate?

If you lower your current mortgage rate with a refinancing, then you will still end up with savings even if you add up the charges from no-closing-cost refinancing. Here are a few ways you can get a low initial interest rate:

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• Having a credit score above 620
• Paying your bills on time
• Having a debt-to-income ratio below 36%
• Choosing a shorter loan term

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Does refinancing require a credit check?

Lenders will obtain your credit report to check if you meet their minimum credit score requirements and to see how you are handling your current obligations. For conventional loans, you’ll usually need a minimum FICO score of 620.   Certain loan types, such as a streamline refinance do not require a credit check. 

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Is mortgage insurance required when you refinance?

As long have a minimum of 20% equity in your home when refinancing a conventional loan, you won’t be required to have mortgage insurance.  On the other hand, if you are refinancing into an FHA or USDA loan, you will have monthly mortgage insurance payments. 

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Final Thoughts

A no-closing-cost refinance is ideal if you want to take out a new mortgage without paying thousands of dollars upfront. Instead, you can pick a higher loan balance, which means your monthly mortgage payment may be slightly larger, but you can keep the closing costs in your savings rather than paying them at loan closing. 

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If you want sound advice on refinancing your mortgage with no closing costs, get in touch with Wesley Mortgage! We’ll be happy to help you save as much money as possible on your new mortgage.

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