What Is a No-Closing-Cost Refinance?

If you’re a homeowner, refinancing your mortgage can be a great way to:

• Get a lower interest rate (especially if interest rates are low)
• Reduce your monthly mortgage payments
• Shorten your repayment period
• Take advantage of your home equity

But before you can enjoy those perks, you have to pay your closing costs.

Remember the closing costs you paid when you bought your home? Well, refinance closing costs are the fees and expenses you pay to refinance (commonly known as “refi”). 

According to the Federal Reserve, closing costs can run as much as 6% of your remaining principal loan balance, in addition to prepayment penalties or other costs you may be on the hook for.^[1]

So if you’re refinancing your home for $150,000, you could pay as much as $9,000 in closing costs.

But what if you didn’t have to pay that money upfront? What if you could refinance without having to dig too deep into your savings?

Like smartphone updates, Instagram challenges and unsolicited parental advice, you can’t avoid closing costs – but you can potentially lower them or pay less upfront if you:

• Understand your closing costs
• Lower your closing costs
• Get a no-closing-cost refinance

Understanding Your Refinance Closing Costs

Some closing costs are charged by the lender. 

Some are required if you use a government-backed loan. Other closing costs are paid to third parties that play a role in making your refinance happen.

Here are some of the refi closing costs you’ll encounter:

Lender fees

There are two ways lenders make money on your mortgage loan. The first is by charging interest on the loan, and the second is by charging fees to process the loan. 

Type of Fee	What It’s For	What It Costs
Loan origination fee	Your lender charges this fee – usually the largest one – to cover the cost of handling your loan.	0.5% – 1% of the loan amount
Miscellaneous lender fees	During the mortgage process, your lender can charge all kinds of fees, including: Application fees Underwriting fees Rate lock fees	$100 – $1000/per fee (varies by lender)
Processing fees	Depending on how your mortgage is processed, you can be charged for: Postage or courier fees Wire transfers Notary services Recording fees	Less than $100/per fee (but it adds up pretty quick!)

Government fees

If you have a non-conventional loan, like a Veterans Affairs (VA) loan or a Federal Housing Administration (FHA) loan, you may have to pay additional fees in exchange for Uncle Sam’s protection. These fees can be paid upfront or added to your loan balance.

• VA loan fees: Funding fees are 2.3% to 3.6% of the total loan value.^[2] The funding fee is based on the number of times you’ve used a VA loan. You may be able to pay less in closing costs when you take advantage of special VA programs, like an interest rate reduction refinance loan (IRRRL).^[3]
• FHA loan fees: If you pay less than 20% down on your refinance, the FHA charges 1.75% of the total loan’s value to cover the upfront mortgage insurance premium (UFMIP).^[4] You may be able to get a discount on the fee if you use an FHA Streamline Refinance.

Third-party fees

You or your lender will have to pay outside parties for services related to the refinancing process. These services may include:

• An appraisal: $600 – $2,000. This is the fee a home appraiser will charge to tell the lender what they think your home is worth. 
• Credit report fee: $30 – $50. The fee charged by credit agencies to provide the lender with your credit report.
• Title report/title insurance fees: $300 – $1,500. The fee charged by a title company to research your home’s title and insurance, and make sure that there are no outstanding liens or other claims on the home.

Miscellaneous expenses

Escrow related expenses: If you use an escrow account to cover your property taxes and insurance payments and then switch lenders, you may have to pay to set up a new account and put additional funds into the account to make sure you’re covered.

Mortgage insurance: When you refinance your loan, hopefully, it’ll be for less than 80% of your home’s value. If that’s not the case, you may end up paying for private mortgage insurance (PMI) or mortgage insurance premiums (MIPs). In some cases, you may need to pay all or part of it upfront.

How To Lower Your Closing Costs

Knowing your fees is half the battle – the other half is lowering them.

Like any negotiation, if you’ve got leverage and you’re prepared, you’ll be in a better position to get what you want. 

Negotiate for a refund

If you have a good credit score, a low debt-to-income ratio and a steady income, you may be able to get your lending fees lowered or waived.

Lenders may offer to refund certain fees, especially the ones they generate themselves – like rate lock fees, underwriting fees and application fees – so don’t be afraid to ask.

Love your lender

Loan officers and underwriters are people, too. Treat them with respect and courtesy and make their lives as easy as possible. They’ll be more likely to listen when you ask them to lower your closing costs.

Use your title insurance company

Title costs can run over $1,000. If you work with the title insurance company you used when you got your home, there’s less legwork for the company. And that may save you up to 40% off title fees.

See if you can skip the appraisal

If your home was recently priced, your lender may be willing to waive the appraisal – saving you on the fee. On the other hand, if you think your home’s value has increased, it may be worth it to get the appraisal.

Sign at the end of the month

You’re charged an interest rate every day (aka per diem) from the date you close to your first loan payment, which usually happens at the beginning of the month. 

If you sign your loan papers near the end of the month – you could save hundreds.

How a No-Closing-Cost Refinance Works

Of course, there is more to closing costs than knowing their fees or how to lower them. 

How about “avoiding” them altogether?

The first thing to know about a no-closing-cost refinance is that it doesn’t actually get rid of your closing costs. 

Your lender can offer two cost-shifting options:

• Add the closing costs to the new loan
• Waive the closing costs for a higher interest rate

In either case, you pay the costs, but they’re spread out over the life of your mortgage.

This is why it’s a good idea to try and lower your closing costs before you get a no-closing-cost refinance. When you lower your closing costs at the start, you save money – no matter how you pay for your refi.

How does a no-closing-cost refinance help?

Not paying closing costs upfront lets you hold on to more of your money. 

If you plan on spending less than 5 years in your home or you plan on refinancing in 5 years, you may also save money on payments.

On the other hand, if you plan on spending more than 5 years in your home, you may wind up paying more in interest over time.

Pay Now, Pay Later: You Decide

No matter what kind of no-closing-cost refinancing you decide on, it’s really important that you run the numbers before you agree to anything. 

While there is value in paying your closing costs over time, make sure that it doesn’t make your monthly payments unaffordable in the long run due to interest accruing. 

Otherwise, if you’ve got the funds, it may make more sense to bite the bullet and pay your closing costs upfront.