Should You Refinance Your Mortgage With No Closing Costs?

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Refinancing your mortgage with no closing costs or lender fees can work to your advantage in some scenarios. You will need to consider the amount of refinance charges, how long you plan to stay in the home and whether your lender offsets the expense of waiving the closing costs.

Closing costs for a refinance typically amount to 2-3% of the loan amount, costing U.S. homeowners an average of $4,345.

What is a no closing cost refinance?

With a no-cost or no-closing-cost refinance, the lender will either cover some or all of the fees on your behalf or fold those costs into your loan balance. In either case, this will reduce or eliminate how much you’ll need to pay upfront. Many of the costs associated with getting a mortgage also apply when refinancing.

Refinance closing costs vary based on your state and local municipality, the lender, the amount borrowed, the type of property and other factors. Here’s a look at some standard fees you can expect to pay when refinancing:

FeeRangeAverage cost
Application fee$75 - $500$235
Appraisal fee$225 - $700$480
Origination fee0% - 1.5% of loan principal1% of loan principal
Local recording fee$25 - $250$135
Reconveyance fee$50 - $65$58

Using the 2-3% calculation, a refinance of $250,000 would cost a borrower between $5,000 to $7,500. With a no-closing-cost refinance, the borrower would pay significantly less up front — or nothing at all.

There’s a trade-off, though. Typically, the lender builds in the cost of waiving the closing fees into the loan. And, as we noted, you may still be responsible for paying some of the third-party charges.

Keep in mind, if your lender allows you to waive your upfront closing costs by baking those fees into your interest rate or total loan balance, you will incur interest on that additional balance. In most cases, this will cost you more over the long run than if you had paid those costs upfront.

Borrowers who don’t have enough funds for closing costs and those who plan to sell or refinance again often pursue a zero-closing-cost refinance because the upfront savings reduce the amount needed for a down payment.

How does a no-closing-cost refinance work?

There are two common ways a lender covers the cost of waiving closing fees: by adding the charges to the loan principal or by offsetting the costs with an increase to the interest rate. Either way, you are paying the closing costs indirectly.

Bundling closing fees into financing

Assuming a $250,000 refinance, let’s say the closing costs amount to $6,250 (2.5%). The lender would roll that amount into the loan, raising your principal to $256,250. Your monthly payments would increase along with the loan amount.

Offsetting costs with a higher interest rate

A lender who uses this method may increase your interest rate, for example, from 4% on a traditional refinance to 4.375% for a no-closing-cost refinance. In this case, you’ll be paying the higher interest rate for the life of the loan.

Does a no-closing-cost refinance save me money?

In both cases above, you’ll bring less or no cash to closing, but your monthly payments will be higher than if you paid the closing costs upfront. Whether a no-closing-cost refinance saves you money depends on the amount of the charges and how long you will stay in the home.

Here’s an example that compares a traditional loan and a no-closing-cost refinances.

Traditional refinanceNo-closing-cost refi with increase to principalNo-closing-cost refi with increase to rate
Amount refinanced$250,000$256,250$250,000
Upfront fees$6,250 (2.5% of principal)$0$0
Interest rate4%4%4.375%
Term15 years15 years15 years
Monthly payment$1,849$1,895$1,897
Total interest paid$82,860$84,931$91,379

With a traditional refinance, you pay the $6,250 in closing costs upfront. But that changes with a zero-cost refinance.

If you did a no-cost refinance with a lender that rolls the fees into the loan, you would be financing $256,250, and your monthly payment would increase by $46. Over the life of the loan, financing the $6,250 in closing fees would cost you $8,321 — $2,071 more than paying it upfront.

In the case where a lender raises the interest rate on a no-closing-cost refinance by 0.375 percentage points, your monthly payment increases by $48 over the traditional loan, costing you $8,519 over the 15-year loan. This represents $2,269 more than had you paid the closing costs upfront.

Overall, this difference may be larger or smaller depending on the amount you’re trying to refinance and the interest rates and closing costs that your lender quotes. When calculating your costs, it’s a good idea to use a mortgage calculator to inform your decision.

When to pay closing costs upfront vs. bundling them into the loan

Borrowers who do not plan to stay in the home for the remainder of the loan or who will refinance again soon may come out ahead with a no-closing cost refinance. In these scenarios, paying several thousands of dollars in closing costs upfront may cost more than the long-term increase in principal and interest. Keep in mind some lenders may charge a prepayment penalty if you pay off or close your loan within the first few years.

Of course, for borrowers who don’t have the cash to pay closing costs upfront, a no-cost loan provides an alternative to forgoing a refinance altogether.

Naturally, you’ll need to compare the particulars of your situation to determine which option benefits you. Consider how much you are refinancing, the amount of the charges, how long you plan to remain in the home and the cost difference between paying the fees upfront and rolling them into the loan.

Who offers no-closing-cost refinances?

You may need to look beyond large national banks for a refinance with no closing costs. Credit unions, smaller regional or community banks and online lenders may have zero-closing-cost loan options.

When shopping for a loan, spend time comparing both traditional and no-closing-cost refinances. Make sure you are familiar with the exact terms of each option. Loan Estimates from your lender will help you. Additionally, be sure to make apples-to-apples comparisons among multiple lenders to see who has the most competitive loan option for you.

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