There are plenty of good reasons to consider refinancing your mortgage. Maybe you want to take advantage of lower interest rates, consolidate some other debt, or simply take advantage of some of the equity in your home. However, the closing costs associated with a mortgage refinance often put people off. Refinancing your mortgage with no closing costs can be a great choice to lower your interest rate or reduce your monthly payments without the upfront expenses typically associated with a mortgage refinance.
What Is a No-Closing-Cost Refinance?
With a no-closing cost refinance, the lender covers the closing costs in exchange for a slightly higher interest rate or by rolling the costs into the loan. It's essential to compare the total costs, including interest, over the life of the loan to determine if the no-closing cost option is more cost-effective for your situation.
Average Closing Costs when Refinancing a Mortgage
You probably remember paying a bunch of closing costs when you first bought your house. Unfortunately, a mortgage refinance requires a lot of the same costs. You should budget roughly 2-to-6% of your current mortgage balance as closing costs to refinance. Your lender may need a brand-new house appraisal and/or building inspection.
Check Your Credit Score
A higher credit score can help you qualify for better interest rates. Obtain a copy of your credit report and work on improving your score if necessary.
Research Lenders
Explore reputable lenders that offer no closing cost refinancing. Compare interest rates, terms, and customer reviews to find a lender that suits your needs.
Higher Loan Balance
Choosing to have your closing costs tacked onto the total loan amount is another way to avoid closing costs. However, this will also cost you extra in the long run. Let’s look at our running example one more time.
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