Refinancing can be a smart move for homeowners who want to slash their monthly mortgage payments or trim their loan terms. But a refi can also be the sheer deuce when it comes to closing costs. In some cases, the savings you reap from refinancing are not worth the sticker shock of the fees. And yet, there are some (more or less mythical, we might add) no closing cost refi options out there, which claim to allow you to refinance your mortgage without paying any upfront fees.
Homeowners have the option to do a refinance on their existing mortgage without having to pay the conventional closing costs. Typically, these costs can reach around a couple of grand, with a few thousand as a conservative estimate. These costs encompass many different things like title searches, appraisals, and the origination fees, which local lenders will usually bundle up and then tack onto the principal amount of the mortgage.
Rather than paying those expenses using personal money, homeowners who pursue a no closing cost refinance can include them in the balance of their new loan or, alternatively, agree to pay a bit more each month to cover the costs. Even though either of these methods can mean that one will pay more in the long run, they are nevertheless options that allow borrowers to refinance with less financial stress than would occur if they had to pay a lump sum right up front.
No closing cost mortgage refinance options come with a nice, big potential for savings. That’s because, unlike loans that require closing costs to be paid upfront, these refinance options eliminate that immediate expense. And, as everyone knows, interest smartly applied can pack a much bigger punch in the saver’s wallet than interest charged. The cost savings, therefore, come from doing the refinance with the no closing cost mortgage route.
Moreover, a refinance without closing costs can be very useful for homeowners who plan to sell or refinance again soon. These homeowners can take advantage of the freedom and savings that come with closing costs covered by the lender. Being able to refinance without taking on debt from upfront costs can provide a lot of instant financial relief. And if a homeowner knew for certain that they were going to sell or refinance within a few years, they actually wouldn’t be doubling up on closing costs like the above example.
It is vital to remember that not all cost-free mortgage refinancing alternatives work well for every homeowner or in every situation. Immediate savings and increased convenience are both powerful draws, but if they come at the cost of tacked-on interest or stretched-out loan terms, the homeowner may very well experience much greater overall cost in the long run—more than the small amount that the closing costs they got out of paying would ever be worth, certainly.
It is very important for homeowners to thoroughly contemplate the positive and negative aspects that come with a no-closing-cost refinance. Personal financial goals and circumstances should be taken into account when making this decision. Lenders or financial advisors can be consulted to help in the determination process.
To sum up, refinancing with no closing costs is a way for homeowners to take advantage of current, low interest rates and pay down their loans sooner. It can be a great option if you’re not certain you’ll be in your house for the next 5 years. It’s also a good route to pursue if you need the cash you’re saving as a result of your refinancing in the near term. However, make sure you don’t rush; refinancing is always going to come with costs of some sort. And there are both obvious and somewhat hidden ways that no- and low-closing-cost refinances can end up being expensive over the long run.
