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Is a No-Closing-Cost Refinance Worth It?

Refinancing your mortgage usually comes with closing costs, but some lenders offer no-closing-cost loans that don’t require payment upfront.

Aly J. Yale Aly J. Yale Edited by Chris Jennings Updated March 28, 2022

No closing cost refinance (mortgage) hero

Our goal is to give you the tools and confidence you need to improve your finances. Although we receive compensation from our partner lenders, whom we will always identify, all opinions are our own. Credible Operations, Inc. NMLS # 1681276, is referred to here as "Credible."

If you want to refinance your mortgage but are short on cash, you can avoid out-of-pocket expenses by choosing a no-closing-cost mortgage refinance.

But don’t make the mistake of thinking you’re getting out of paying closing costs altogether — typically you’ll pay a higher interest rate or, in many cases, the closing costs will be bundled into your loan, increasing your balance and monthly payment along with it.

Here’s what you need to know when considering a no-closing-cost refinance:

  • Costs associated with refinancing a mortgage
  • What is a no-closing-cost refinance and how does it work?
  • Pros of a no-cost refinance
  • Cons of a no-cost refinance
  • Should you choose a no-closing-cost refinance?
  • Compare multiple lenders

Costs associated with refinancing a mortgage

A mortgage refinance comes with closing costs just as your original loan did. These costs include the lender’s origination fee, any mortgage points you buy, the cost of an appraisal, and other expenses as well. Typically, closing costs total 2% to 5% of your home’s price, though it varies based on your location and lender.

According to Freddie Mac, the average cost to refinance a mortgage is around $5,000. The exact amount you’ll owe will depend on your lender, their loan products, where you live, and your loan balance.

Some common fees that go into this amount include:

Recording feesFor recording the closing documents with the county
Appraisal feesIf the lender requires an appraisal of your home’s value
Credit reporting feesTo pull your credit report
Origination feesThe lender’s cost to generate the loan
Attorney’s feesTo have the documents reviewed by an attorney
Title feesFor title search, insurance, and review services
Underwriting feesFor underwriting the mortgage
Tip: Some lenders advertise refinance loans with “no closing costs.” While these technically come with no upfront fees, you’ll usually pay the closing costs in another way — either with a higher interest rate or by having them rolled into your loan balance.

Can closing costs be waived?

It is possible that a few of your closing costs may be waived outright. For example, in a competitive landscape, some lenders will waive certain fees, such as the application fee or origination fee, in order to get your business.

However, it’s unlikely they’ll waive every fee, and you may still be left with costs that exceed the amount you want (or are able) to pay. If this is the case, rolling the closing costs into your loan balance and spreading them out over time may be a smart option.

Check Out: How to Refinance Your Mortgage in 6 Easy Steps

What is a no-closing-cost refinance and how does it work?

A no-closing-cost refinance is a refinance where you don’t have to pay the closing costs upfront. Instead, you roll them into the loan by adding them to the principal amount, or the lender issues you a credit for them and recoups the costs by charging you a higher interest rate.

Either way, you’ll still pay the closing costs, but instead of paying them upfront, you’ll pay them incrementally over the life of the loan.

How does it work? Let’s say you have 20 years left on a $100,000 mortgage with a 5% interest rate. You want to refinance into a 30-year loan with a 3% interest rate.

To do this, you’d need to borrow $100,000 to pay off your current mortgage. On top of that, you’ll need to pay closing costs on the loan, which typically run between 2% and 5% of the loan amount (in this case, $2,000 to $5,000). If you don’t want to pay closing costs, you have two options:

  1. Roll the costs into the loan: Assume the closing costs are $5,000 for this example. If you were to roll them into your loan, you’d have to borrow $105,000 — $100,000 to pay off your current loan, and $5,000 to pay the refinance lender its closing costs — and make principal and interest payments on the new amount.
  2. Accept a lender credit and receive a higher interest rate: You could also accept a lender credit in the amount of $5,000 in exchange for a higher interest rate. It’s up to you to determine if paying slightly more in interest over the course of your loan is worth it or not.

Pros of a no-cost refinance

Even though you’ll still pay closing costs, the way you pay them makes this kind of loan a good choice for some borrowers. Here are two major benefits when it comes to taking out a no-closing-cost refinance:

  • You keep more money in your pocket upfront: Not having to pay closing costs upfront saves you potentially thousands of dollars that you can use for other more immediate expenses, such as paying off student loans or credit card debt.
  • Paying over time is less burdensome: It’ll take longer to break even — that is, the point where your lower payments save you more than you spent in closing costs — if you refinance your closing costs. But paying them over time can be less burdensome than coming up with a large lump sum of cash.

Learn More: When to Refinance a Mortgage

Cons of a no-cost refinance

With a no-closing-cost refinance, there are two notable disadvantages. Beneficial as it might be to hold on to your cash, there’s price to pay for the convenience:

  • It might cost you more money in the long run: Rolling the closing costs into the loan means increasing the principal balance. A lender credit increases your interest rate. Both options increase your refinance rate.
  • You may have to pay private mortgage insurance (PMI): If the rolled-in closing costs of the new loan push your loan-to-value (LTV) ratio above 80%, leaving you with less than 20% equity in your home, the lender will require you to purchase PMI. PMI protects the lender in case you default, and it can add $30 to $70 more to your monthly mortgage payment for every $100,000 borrowed.

A no-closing-cost mortgage will likely cost you more money in the long run, either by increasing your refinance rate or raising your loan balance. Either way, you’ll pay more for the mortgage over the life of the loan.

Closing costsPrincipal amountRateTotal interest paid
$5,000, paid upfront$100,000 3%$51,777
$5,000, rolled into principal amount$105,000 3%$54,366
$5,000, with lender credit$100,000 3.26%$56,872

Should you choose a no-closing-cost refinance?

No-closing-cost refinances aren’t right for everyone, but they can be a wise move in certain situations.

Here’s when it might be smart to choose a no-closing-cost refinance:

  • When you’re short on savings: If you just don’t have the cash to cover upfront closing costs, but refinancing would save you significantly in the long run, it might be worth considering.
  • When it will still lower your interest rate: Even if your lender charges you a slightly higher rate to forgo closing costs, there’s a good chance it’ll still be lower than your current loan’s rate. This would mean a lower monthly payment and less in interest costs in the long run.
  • When you don’t plan to be in the home that long: No-closing-cost refinances cost you more in interest the longer you stay in the home. If you know you won’t be sticking around more than a few years, it might be a good option.

Learn More: Mortgage Refinancing Calculator

Here’s when you should probably just pay the upfront closing costs:

  • When you have the savings to handle it: You’ll pay less in the long run if you just settle your closing costs upfront. If you have the savings available to do so, it’s probably for the best.
  • When you plan to stay in the house for the long haul: If you know this is your forever home, then paying upfront is your best bet. The longer you’re in the house, the more that no-closing-cost refinance will cost you.
  • When you want the lowest payment and interest rate possible: No-closing-cost refinances will almost always come with a higher monthly payment and, sometimes, a higher interest rate, too. If you’re looking for the most affordable payment possible, paying your closing costs upfront is the way to go.
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Make sure to shop around if you decide on a no-closing-cost refinance. Not every lender offers these options, so comparing at least a few companies can ensure you get the loan you want at a rate you can afford.

Credible makes refinancing easy. You can see personalized rates from our partner lenders in the table below in just three minutes. We also provide transparency into lender fees that other comparison sites don’t.

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Daria Uhlig contributed to the reporting for this article.

About the author
Aly J. Yale
Aly J. Yale

Aly J. Yale is a mortgage and real estate authority. Her work has appeared in Forbes, Fox Business, The Motley Fool, Bankrate, The Balance, and more.

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