A mortgage refinance occurs when you obtain a new mortgage to pay off your old one. Usually this results in your paying a lower interest rate or changing other terms of your mortgage into terms that are more favorable to you. A no closing cost refinance mortgage is a type of refinancing that does not require the borrower to pay any closing costs.
Closing Costs for Refinancing
Closing costs can include, but are not limited to:
- Appraisal fees
- Survey costs
- Credit check charges
- Broker fees
- Loan origination fees
- Deed transfer fees or taxes
- Title search expenses
Depending on the lender and how long ago you obtained your original mortgage, there is a chance that not all of these fees will be charged in a refinance. For example, if you refinance through your same mortgage lender, you may not need a new survey.
According to the Federal Reserve, there are two main types of refinancing that do not involve closing costs:
- Lender pays costs: In this type of refinancing, the lender (i.e., mortgage company) pays all closing costs, usually resulting in the borrower paying a higher interest rate.
- "Rolled Into": In this type of refinancing, the lender adds the total amount of closing costs to the loan principal, resulting in the borrower paying interest on closing costs for the life of the loan. This arrangement is not a literal "no closing cost" refinance because borrowers eventually wind up paying closing costs.
There are benefits and drawbacks to both types of refinancing; the type that is right for you depends on your circumstances.
Lenders Offering Refinancing Without Closing Costs
Since the 2008 housing crisis, there are few no closing cost mortgage refinance options available. Zillow states that many lenders do not advertise their no closing cost options and, because of this, it is worthwhile to contact a lender directly to see if they have this type of program.
Each lender establishes individual qualification requirements. Borrowers must complete and submit an application, at which time the lender determines if the borrower qualifies.
Some lenders still advertise no closing cost refinance programs:
- US Bank: This lender offers a "Smart Refinance" option that does not include closing costs. Borrowers also do not pay points, fees, or origination costs, and can obtain a fixed rate. This product is available to homeowners who owe less than $150,000 on their home.
- Fremont Bank: This bank offers California residents a refinancing package with a no closing cost option. Interest rates begin at 3.375%.
- Mortgage Warehouse: This company offers a refinancing option in which it pays all title, appraisal and third party fees, resulting in a no closing cost refinance. Residents in Indiana, Florida, and Kentucky can use this company. The company states that it does not feature higher interest rates on its refinancing mortgages, but that it normally requires a minimum loan amount of $180,000.
If You Do Not Qualify
If a refinancing lender denies you for a no cost refinance, you may elect to roll your closing costs into the principle of your loan, as explained earlier. However, another option is to obtain a traditional refinance in which you pay closing costs.
You might also consider working with a mortgage broker if you are having trouble finding an appropriate loan product. A mortgage broker can search the market for you to find products for which you qualify.
Refinancing Your Loan
The decision to refinance is a personal one based on how long you intend to stay in your home, how much you can save on closing costs, and whether it is possible for you to save money on your monthly payments. Always ensure that you understand all loan terms before changing your mortgage.