With mortgage rates skyrocketing in the past few years, many borrowers are interested in refinancing with a better rate. Refinancing a mortgage is a big investment of time and money. If you’re looking for a new rate, there are mortgage lenders who offer a no-closing cost refinance option. However, there are details with this type of no-closing-cost refinance that you should be aware of before signing on the dotted line.
What Is a No-Closing-Cost Mortgage Refinance?
Traditional closing costs add up quickly, ranging from 3 - 6% of the mortgage loan. Common closing costs can include these fees:
Home appraisal fees
Mortgage origination fees
Depending on your situation, additional fees could be associated with your closing costs.
A no-closing cost refinance is a refinancing option where borrowers don’t have to pay closing costs when they get a new loan. There’s no upfront payment required, but that doesn’t mean your lender picks up the extra fees for free. These expenses are often rolled into the principal balance or exchanged for a higher interest rate.
The most straightforward no-closing-cost mortgage refinance takes the closing costs you would have paid and adds them to the total balance of your loan. This option increases your monthly payments but doesn’t affect the interest rate.
Another common option in no-closing-cost refinance is for lenders to apply a higher interest rate to your loan in exchange for waiving the initial closing costs. Refinance interest rates depend on many different factors, including credit score, credit history, and employment. While a higher interest rate won’t change the principal amount, your monthly payment and total interest paid will be higher in the long run.
It’s crucial to compare multiple lenders before applying to refinance your mortgage. Your credit score won’t be impacted by checking on mortgage rates. Shop around to find the best refinancing loan for your specific financial needs.
How Does a No-Closing-Cost Mortgage Refinance Work?
There are two different options you can choose from when applying for a no-closing-cost refinance: a higher interest rate or a higher loan balance. Not every lender offers both types of no-closing cost refinances, so double-check that your lender offers the right option for you.
Higher Mortgage Rate
If you want a no-closing-cost refinance without adding additional money onto your principal, you’ll have to accept an increased interest rate. This option won’t change your principal loan amount. Keep in mind that even a minor change in your interest rates means you’ll pay more over the term of the loan.
Higher Principal Loan Balance
The total loan balance increases if you choose to roll in your closing costs. While you won’t pay as much interest over time, your monthly payments will be higher. Ensure you can afford the higher monthly payments before agreeing to this type of refinance.
Pros and Cons of No-Closing-Cost Refinance
There are both benefits and drawbacks to a no-closing-cost refinance. You can make the best choice moving forward by understanding the pros and cons of both types of no-closing-cost refinancing loans.
Pros of No-Closing-Cost Refinance
Less payment upfront: No closing costs mean less money is required upfront.
Good for short-term savings: If you plan on living in a residence for a short time or are a first-time home buyer, you’ll reduce the initial financial burden and pay fewer expenses upfront.
Frees up cash for other projects.
Cons of No-Closing-Cost Refinance
Higher monthly payments: You’ll have to pay more monthly to make up for waiving closing costs.
More expensive long term: No-Closing-Cost Refinancing can be more costly overall due to higher interest rates over the loan’s term
Higher loan balance: If your lender chooses to roll the closing costs into the loan, you may have a larger principal.
Who Is a No-Closing Cost Mortgage Refinance Best For?
Refinancing is a serious financial endeavor that can stress out even experienced homebuyers. However, a no-closing-cost refinance can help alleviate the financial burden. In particular, first-time home buyers and short-term residents benefit from this type of refinance. Folks who have trouble coming up with the initial funds and people who are only planning on living in a residence for a short amount of time benefit more from a no-closing-cost refinance rather than traditional refinancing options. A no-closing-cost mortgage refinance may be right for people who need to save their funds for home renovation projects or other large financial investments.
Overall, no-closing-cost refinances mean you’ll pay less over the entire life of a loan if you pay closing costs upfront. However, that’s not always possible, and spreading out the closing costs may be the best choice for your financial situation.
Best Lenders for No-Closing-Cost Refinancing
Based on customer evaluations and extensive research, we’ve compiled a list of the best lenders for no-closing-cost refinancing. No matter which lender you choose, you should expect clear communication about all aspects of your refinancing and transparency about what you’ll pay.
Overall Pick: Rocket Mortgage
With award-winning client service, Rocket Mortgage is a great lender for no-closing-cost refinances. An easy-to-use digital lender, you can upload your necessary documents directly to your account. You also have 24-hour access to your loan online and through the Rocket app. You can see how much you qualify for and at what rate, all online or from your phone. Check out why Rocket is the top-rated lender in customer satisfaction in the U.S.
Best for Bad Credit: OneTrust Home Loans
OneTrust Home Loans prides itself on having transparent communication with its experienced mortgage educators and an efficient loan process. Their team works with credit-challenged applicants to secure a new loan. They also offer personalized refinancing options to ensure borrowers get the best rate possible.
Best Customizable Loan Options: Quicken Loans
Another lender with award-winning customer service, Quicken Loans has been a top-rated lender for over 35 years. To apply with Quicken, you must have good credit, typically a FICO score of 620 or higher. They offer live chat and phone support 7 days a week to help you through the refinance process. Quicken’s streamlined process with document and asset retrieval simplifies refinancing.
Best for Bilingual Borrowers: New American Funding
Whether you speak English or Spanish, receive a personalized refinance quote from New American Funding (NAF) in minutes. Their bilingual customer support offers online and in-person applications where you can lock in competitive rates fast. Consumers need a minimum credit score of 580 to apply for a refinance, and the average closing time is less than 35 days. NAF has branches in 33 states but is unavailable in Hawaii. With an A+ BBB rating and over 210K reviews, NAF values a straightforward loan application process.
Best for Fast Approval: AmeriSave Mortgage
AmeriSave Mortgage boasts custom refinancing rates in less than 3 minutes without impacting your credit. There’s no rate lock or application fee, so you can apply and compare rates without forking over more dough. AmeriSave offers competitive, low refinance rates and a convenient online application available 24/7. Borrowers must have a minimum credit score of 600 to apply through AmeriSave. While they don’t have any physical locations—AmeriSave provides loans in 49 states (except New York) and Washington, D.C. They also have a refinance calculator tool on their website, updated daily with current rates.
Best for No Upfront Fees: Discover Home Loans
While many consumers are familiar with Discover as a credit card issuer, Discover Home Loans is one of the leading lenders that offer no-closing-cost mortgage refinancing. Consumers with a minimum credit score of 620 can apply for new loan terms from $35,000 up to $300,000. With a refinance from Discover, you won’t pay application fees, loan origination fees, appraisal fees, or closing costs. You can also complete all or nearly all of the application process entirely online. On average, consumers can expect between 6 - 8 weeks to close on the loan.
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