How to Refinance Your Mortgage with No Closing Costs 2024

How to Refinance Your Mortgage with No Closing Costs: These are numerous compelling reasons to consider refinancing your mortgage. Perhaps you want to take advantage of reduced interest rates, consolidate some other debt, or simply use some of your home’s value. The closing costs involved with a mortgage refinance, on the other hand, frequently put people off. In the event of a straightforward refinance, you may wind up with a cheaper mortgage payment. But, when you pay the closing costs, are you really any better off? A good place to start is to go online for banks or other lenders who provide mortgage refinancing.

A number of banks and financial organizations are now providing “No-Closing-Cost Refinance” mortgages. Sounds appealing, doesn’t it? They have their own set of advantages and disadvantages, but it is not deceptive advertising – you can refinance your mortgage without paying closing charges. The disadvantage — and there is always one — is that your monthly mortgage payments will be greater. If you’re still interested, your first step should be to conduct an online search for no-closing-cost mortgage lenders.

No-closing-cost refinances almost always cost you more money in the long run, but can be a good short-term solution when money is tight.

Amedya J. Hilson

What Is a No-Closing-Cost Refinance?

This isn’t a trick question. A no-closing-cost mortgage refinance is simply refinancing your mortgage without having to pay the closing charges upfront. However, this does not negate the existence of costs. Your mortgage lender isn’t going to just pay them for you. Instead, the charges are either rolled into the mortgage principle or traded for a slightly higher interest rate.

For instance, suppose you wish to remortgage your home for R250,000. Depending on the lender’s criteria, the average closing expenses on that transaction would be between R2,500 and R6,000. Instead of paying those fees in one lump amount, you wind up with a mortgage for, say, R255,000. Closing expenses are included in the total amount.

• Average closing costs of a mortgage are anywhere from 2-to-6% of the total loan amount.
• A no-closing-cost mortgage refinance rolls those costs into the overall mortgage amount, or trades them for higher interest rates.
• No-closing-cost refinances almost always cost you more money in the long run, but can be a good short-term solution when money is tight.
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Average Closing Costs when Refinancing a Mortgage

When you originally bought your house, you probably had to pay a lot of closing expenses. Unfortunately, a mortgage refinance incurs many of the same expenses. To refinance, you should budget 2-to-6% of your current mortgage total as closing fees. A brand-new house appraisal and/or building inspection may be required by your lender. You’ll have to pay for those as well.

Legal fees are often included in closing costs. There are also the:

• Loan origination fee for roughly 0.5-to-1% of the mortgage amount;
• Title fees;
• VA Funding Fees if applicable, and;
• Mortgage insurance is required on most mortgages unless you have 20% down payment on the purchase price of the house.

You may also be required to pay lesser credit report costs. To confirm your trustworthiness, lenders will require copies of your credit report. Yes, even if you currently have a mortgage, you must demonstrate your worthiness for a new one.

Additional Fees Related to the No-Closing-Cost Refinance

The ultimate consequence is the same whether you choose to have your closing costs rolled into the principle amount or a higher interest rate. Your mortgage payments will be higher than if you paid the closing fees in full. Consider both scenarios.

Mortgage Rate Increase

Let’s remain with the R250,000 mortgage amount from before. If you pay the closing costs in advance, you can get a 2.9% interest rate. Your monthly payment will be R1,997.79, excluding property taxes and mortgage insurance. You can, however, choose a no-closing-cost mortgage in exchange for a higher interest rate.

So you save roughly R5,000 in the beginning. However, your interest rate is currently 3.75%. Your monthly payment has increased to R2,101.39. Sure, it’s only an extra R100 per month. However, your mortgage is for 15 years, or 180 months. In approximately 50 months, that extra R100 would have covered the entire closing costs.

Increased Loan Balance

Another approach to avoid closing fees is to have your closing charges added to the entire loan amount. However, this will cost you more money in the long term. Let’s go over our running example once again.

Your R250,000 mortgage costs R1,997.79 per month at 2.9% for 15 years. You will have paid a total of R359,602.20 after 15 years. Let’s imagine you acquire the same terms as before, but you add R5,000 in closing fees to the loan amount. Your monthly payment has increased to R2,032.08. Your payments will total R365,774.40 after 15 years. Your closing fees have increased from R5,000 to nearly R6,100.

When Is a Home Refinance with No Closing Costs a Good Idea?

No-closing-costs mortgage refinances will nearly always expense you more money in the long run, no matter how you slice it. So, why do people use these mortgage products? There are a few of instances where one might be appropriate.

If you expect to stay in a home for less than five years, you won’t be able to recoup the upfront expenses in refinance savings before moving again. If you qualify for a mortgage but don’t have enough money for closing expenses, a no-closing-cost refinance may be your only option.

There are also other circumstances to consider. If you are in a financial emergency and require immediate access to funds, borrowing against the equity in your house may be your only option. Assuming money is tight — remember, this is an emergency — you probably don’t have the closing costs on hand. You’ll pay more for it, but a no-closing-cost refinance could get you out of a jam.

The final possibility to consider is if the interest rate on your initial mortgage was very high. Assume you closed your first mortgage 5-to-10 years ago at a higher interest rate due to a poor credit score. You’re in a much better financial situation now, and you’d be eligible for a considerably cheaper interest rate. For example, instead of 4.9%, consider 2.9%. Even if you incorporated the closing expenses into the principle amount, your overall interest savings — both monthly and over the life of the mortgage — would more than cover the closing charges.