Eliminating Refinance Loan Closing Costs

Getting a refinance loan without closing costs is possible and there are ways to avoid up-front fees.

No-cost Refinance Loan

Closing costs can range from $4,000 to $15,000 or more for homeowners when refinancing, so it is important to ask the lender questions and do homework. Some lenders will cover application, appraisal, and title fees eliminating the closing costs. However, they may be included in the loan and the interest rate may then increase.

The benefits of this type of loan can be great if you are short on cash for closing costs. Some loans out there reflect this, but be aware of those falsely advertising the "no-cost" loan. There is no such thing as a loan that is entirely "no-cost."

Two Ways to Eliminate Closing Costs

To eliminate the costs in a refinance loan, ask the lender to cover closing costs, but be aware that they may charge a higher interest rate and you will pay the higher rate throughout the life of the loan. Be certain to ask each lender for comparisons of up-front costs, payments, rate, points, and principal, and go over them before making a decision.

Another way to do away with closing costs is to have the refinance fees included into the loan. The fees become part of the principal. Instead of paying cash up front, you will pay the fees throughout the life of the loan with interest. Typically, a prepayment penalty will be included in the loan to discourage refinancing for a certain period of time. These periods may vary from lender to lender. Have the lender go over all fees and penalties before making a decision, and speak to more than one lender.

If you choose to refinance your mortgage, be certain the savings are there and will make it worthwhile. The savings should cover the related costs of the refinance loan while you still live in the home. If you decide to move before the new loan is paid off,  you will not be saving money. To determine the savings, divide the cost of the refinance by the amount you will save each month when you compare the new loan payment to your old one.

Important Questions to ask Yourself Before Refinancing

  1. How long will you stay in your home?
  2. How long until you refinance again?
  3. How much did your last refinance cost?
  4. Did you understand the charges?
  5. Are you pleased with the mortgage you have now?
Americans refinance their mortgages approximately every five years. While some lenders do offer no closing costs, keep in mind that they may roll those fees into the loan, so it is not actually a cost-free loan.

For more information about mortgage refinance loans, please visit www.mortgage101.com