When you take out a mortgage loan to buy a home or refinance a home, closing costs can add up to 3%-6% of the total cost of your home loan. Many are unaware of just how expensive these costs can be. Furthermore, when considering a refinance, some homeowners may put refinancing off due to the closing cost expense. However, there is a no-closing-cost refinance option that could change the game for you!* To discuss this option for your home, contact a loan officer today.
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For starters, you may be wondering what closing costs are. Closing costs are various lender costs that will be paid on closing day whether you are buying a new home or refinancing your current mortgage. Therefore, you must be ready to pay this amount upfront. Some typical closing costs you may pay when refinancing your mortgage are:
- Loan origination fee
- Appraisal fee
- Title fees
- VA funding fee
- Mortgage Insurance
- For explanations of these closing costs and more information, check out our digital homebuyer course.
Note: In some instances, closing cost fees for a refinance can be wrapped into the total loan amount so no money is due out of pocket.
What is a No-Closing-Cost Refinance?
A no-closing-cost refinance is a refinance option where you do not need to pay any closing costs when getting the new mortgage loan. There are many reasons why this may be very advantageous, however, make sure to be educated fully on this program prior to closing day.
Even though the closing costs may be waived, these costs may be seen elsewhere. Basically, your lender may add the typical closing cost balance to your principal. There are two main places where this can be seen- your principal and interest rate.
Adding The Closing Costs to Your Principal
If your lender adds the closing costs to your principal amount, you will not need to pay any upfront closing costs on closing day. Instead, the unpaid balance of your loan will be higher with the addition of the closing cost amount. This will increase your monthly mortgage payments but not affect your interest rate.
Adding The Closing Costs to Your Interest Rate
Another option to a no-cost refinance would be to increase your interest rate in exchange for waiving an upfront cost. On a mortgage loan, the interest rate is the amount paid to your lender (it is reflected in your total monthly mortgage payment) for borrowing. A higher interest rate will raise your monthly mortgage payment but will not affect your principal amount.
If you are considering a refinance for your home, read this client case study.
What are the advantages of a no-closing-cost refinance?
A no-cost refinance allows a homeowner to gain the advantages of refinancing their home such as a lower interest rate or shorter mortgage term, without having to cover a large bill upfront. Essentially, you would not need to front 3%-6% in closing costs upfront.
Who should consider a no-cost refinance?
If you are interested in refinancing but do not want to pay a large amount upfront, this option could be for you. You can alleviate any financial stress and pay the amount in a long-term plan. If you are planning on living in your home for less than five years. This could allow you to avoid paying the whole sum of closing costs by selling your home and avoid paying a lot in interest over the years. In addition, if you use a no-cost refinance now, it can be beneficial to alleviate your payment when the market cooperates, and rates drop.
Refinancing has many benefits, and a no-cost refinance may be a great option for you. To see if you are eligible and inquire about the process, contact us today!
*By refinancing your existing loan, total finance charges may be higher over the life of your loan. Rate savings are subject to market changes.