No Closing Cost Refinance

“No closing cost” refinance loans do not have any closing costs, which would normally cost a substantial amount and have to be paid out-of-pocket. Closing costs include some one time fees like charges for appraisals, surveyors, credit reports, title insurance, lender and brokers’ fees, escrow and recording fees, and some recurring fees such as property taxes, home insurance and interest. A no closing cost refinance loan can be created that has none of these costs to the buyer. The fees do not disappear; they become part of the loan which makes it easier for the buyer at closing time.

Bankrate.com, a well known and reputable financial website, reports that this year on a $200,000 mortgage, average origination and title fees were $2,732. This number does not include prepaid items of prorated interest and association dues, taxes or insurance. Closing costs vary by state, with Texas and New York having the highest costs. No one likes paying closing costs; no closing cost refinance loans are advertised to attract borrowers who want to avoid out-of-pocket costs at closing time.

For some loans, having no closing costs means those costs are simply rolled into the mortgage payments. If your refinance loan is a home equity loan or line of credit (HELOC) there are no closing costs. Because the HELOC loans and home equity loans have no closing costs, they may be about $3,000 cheaper than a regular refinance mortgage. The interest rates for these types of loans are higher than the rates for a normal no points mortgage by about .25% to .50%. If you do not want to refinance the entire mortgage but just want some cash freed up, the home equity or HELOC loans might be the best choice for no closing cost refinancing.

Recurring closing costs are items like property taxes, insurance and things that normally would be paid by you, like mortgage interest on your current loan. Everything is calculated out to the date of the closing to determine closing costs. These are best paid by you rather than folded into the loan. Having these costs wrapped into the new loan is not the same as a “no closing costs” loan. To be sure you are getting a “no closing costs” loan, you must figure out exactly what you are paying for. The broker must detail all costs, so you can calculate these at the closing meeting.

To refinance with no closing costs is a good idea when you are only planning to stay in the home for a short while. This saves you putting out thousands of dollars right away. If you want to refinance in order to save costs, the no closing cost deal is good. Remember, however, should those closing costs get rolled into the loan, you will end up paying more in interest. Even if you get a no closing cost refinance loan, be prepared to pay some type of fees; all lenders differ in doing business and you may still need to pay things like escrow or appraisal fees.