What Is a No Cost Refinance?

A no cost refinance is an opportunity to obtain a lower mortgage rate on your current property without having to incur any costs to do so. Used by the mortgage industry to entice good customers to stay with a lender, these programs offer no-strings-attached, honest-to-goodness, no cost refinancing. All settlement fees are paid by the broker or lender, allowing you, the homeowner, to benefit two-fold. You get a lower mortgage rate, or perhaps better overall mortgage terms, without having to shell out anything from your pocket.

Typically when you refinance, you are assessed fees on all costs the lender incurs in making the deal to allow you to purchase your home. These fees include appraisal costs, processing fees, underwriting fees, and title and escrow fees, just to name a few. All of these fees are then tallied together to be paid by the buyer in what are known as “closing costs.”

What you want to watch for is the occasional offer by a lender to extend you a no cost refinance that is not truly cost free. In these cases, the lender will bundle the closing costs and add them on to the total amount to be refinanced, making the loan appear to be “no cost” because no money is required out-of-pocket, but in reality, the fee is not only being paid by you, the buyer, but over time and with interest.