No Closing Cost Refinance: Everything You Should Know
No-closing-cost mortgages – sometimes called “no point” or “no fee” loans – are quite popular with consumers. However, the terminology may be confusing and leave you wondering whether it’s the right loan option for you.
In this article, we’ll cover what a no-closing-cost refinance is, how it differs from a standard refinance, and what you can do to get started.
What is a No-Closing-Cost Refinance?
A no-closing-cost refinance is a loan option that does not include closing costs at the end of the process. However, this isn’t as simple as it sounds and doesn’t mean that you won’t need to pay the fees in another way. In many cases, passing on closing costs during this method of refinancing will result in a higher interest rate or a larger loan balance.
So what’s the difference? Let’s break it down.
- Interest Rate: taking a higher interest rate with a no-closing-cost refinance will result in more interest accrued by your unpaid loan balance. Through this method, you’ll likely end up paying more in interest over time.
- Loan Balance: most no-closing-cost refinances add on to the unpaid loan balance (also known as the principal). This will ultimately increase your monthly payment amount while leaving your interest rate untouched.
Is a No-Closing-Cost Refinance Different Than a Standard Refinance?
The short answer? Yes. Remember: a non-closing-cost refinance removes closing costs by allocating the costs elsewhere. A standard refinance, on the other hand, includes the usual closing costs that borrowers must pay before finalizing the loan. This includes (but is not limited to) the following:
- Appraisal fee
- Credit report fee
- Discount points, if applicable
- Escrow fee
- Loan origination fee
- Mortgage insurance
- Survey fee
- Title search and title insurance fees
- Underwriting fee
By opting for a no-closing-cost refinance, you’ll avoid the above fees and more by taking on the costs in an alternative way. If this sounds like an ideal step forward for you, find a loan expert near you to get started.
Pros and Cons of a No-Closing-Cost Refinance
If you’re on the fence about a no-closing-cost refinance, it’s important to weigh the pros and cons. Generally speaking, a no-closing-cost refinance may work for borrowers with short-term residence goals or inadequate savings to cover closing costs. Every situation is different, so be sure to always consult with a loan expert to determine your best path forward.
Advantages of a No-Closing-Cost Refinance
- No closing costs: save on immediate expenses during the loan process.
- Financial flexibility: pass on out-of-pocket closing costs and focus more on necessary bills, expenses, and more.
Drawbacks of a No-Closing-Cost Refinance
- Long-term costs: whether you take a higher interest rate or a larger loan balance, you’ll likely end up paying more over the life of the loan.
- Lender availability: not all lenders offer no-closing-cost refinance options.
Getting Started with Total Mortgage
Depending on your needs and finances, a no-closing-cost refinance could be the right choice for you. Get a free quote with zero loan commitment today.