How Does a No-Closing-Cost Refinance Work?

Are you considering refinancing your mortgage, but hesitant about the high cost of closing? A no-closing-cost refinance may be the solution for you.

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In this article, we’ll explain what a no-closing-cost refinance is, how it works, and the benefits and drawbacks of this type of mortgage refinance. We’ll also go over the qualifications and the process of getting a no-closing-cost refinance, so you can decide if it’s the right choice for you.

Key Takeaways

  • A no-closing-cost refinance allows homeowners to refinance their mortgage without paying upfront fees, but these costs are added to the loan balance and paid over time through higher interest rates.
  • While this option can save money initially and simplify financing for those with limited cash, it can lead to higher long-term costs, increased monthly payments, and reduced home equity.
  • To qualify, homeowners need a strong credit score, solid income, and a low debt-to-income ratio, and they should compare different lenders to find the most cost-effective option.

What is a no-closing-cost refinance?

In short, it’s a mortgage loan that offers homeowners the option to refinance their mortgage without having to pay initial fees to lenders.

Closing costs usually pay for lender fees as well as loan origination fees, third-party expenditures, appraisal fees, and underwriting and processing costs. Refinance lenders also take on costs that originate from third parties, including escrow and title costs.

With a no-closing-cost refinance, you potentially save money on closing costs, lower your monthly payment, and build equity in your home faster.

It’s certainly tempting and may be the right choice for certain types of borrowers. However, those closing costs saved are costs added to the loan amount that you’ll eventually have to pay back.

How does a no-closing-cost refinance work?

The application process for a no-closing-cost refinance is similar to that of a traditional refinance. You’ll need to provide financial information and documentation to the lender, and they will run a credit check. Once the mortgage lender approves your application, the refinance process can begin.

You may be wondering how the lender makes money on a no-closing-cost refinance. The lender recoups their costs by charging a slightly higher interest rate on the loan. This way, they can potentially make more money in the long run, even though you don’t pay any closing costs up front.

Pros and Cons of No Closing Costs

Having no upfront closing costs comes with a range of both advantages and disadvantages. The idea of skipping the closing costs and fees upfront may be appealing, or even right for you.

However, it’s still important to consider the various ways it may affect your financial situation next month, next year, and next decade. Here are some pros and cons:


  • Upfront savings: The most immediate benefit of a no-closing-cost refinance is the elimination of substantial upfront fees and the need to pay a large lump sum at closing. This can be particularly advantageous for homeowners who may not have the liquid assets to cover these costs at the time of refinancing. It allows for the conservation of cash that could be used for other pressing financial needs or opportunities.
  • Simplified financing: This type of mortgage refinance loan simplifies the financial burden for homeowners. It removes the hurdle of saving for and managing large, one-time closing costs. This is especially helpful for those with limited disposable income or those facing unexpected financial challenges.
  • Quicker break-even point: For homeowners planning to move or refinance again in the short term, a no-closing-cost refinance can be financially advantageous. By not paying closing costs upfront, they can reach a break-even point more quickly, especially if they sell the home or refinance before the added costs accrue significantly.


  • Increased long-term cost: While there’s an immediate saving on closing costs, this type of refinance often results in a higher interest rate or a larger loan balance. Over time, this can lead to significantly higher interest payments. Homeowners should carefully consider the long-term financial implications, such as how the increased loan balance or rate will impact the total interest paid over the life of the no-closing-cost loan.
  • Higher monthly payments: Due to the higher interest rate associated with a no-closing-cost refinance, homeowners might face higher monthly payments. This increase can strain monthly budgets, especially for those who are already managing tight finances.
  • Reduced home equity: Rolling closing costs into the loan balance can reduce the amount of equity a homeowner has in their property. This is a critical consideration for those who may need to leverage home equity in the future for other financial goals or emergencies.

How to Qualify for a No-Closing-Cost Refinance

When it comes to qualifying for a no-closing-cost refinance, the eligibility requirements are similar to those of a traditional refinance. Your lender will look at your credit score, income, and debt-to-income ratio to determine if you qualify.

To improve your chances of being approved for a no-closing-cost refinance, and potentially lower your monthly payment, it’s a good idea to make sure your credit score is as high as possible. You should also have a solid income and a low debt-to-income ratio, which lenders assess to determine your ability to manage the monthly payment. Additionally, having a good track record of paying your bills on time can also help.

Once you have determined that you are eligible for a no-closing-cost refinance, you need to compare different options to determine which one will be the most cost-effective for you in the long run. Be sure to consider the interest rate, fees, and overall costs of each option before making a decision.

Finding Lenders Offering No Closing Cost Refinance

When considering a no-closing-cost refinance, finding the right lender is the most important step. Different lenders offer varying terms and rates, so it’s important to conduct thorough research to find the best option for your financial situation. Here’s a guide on how to find and compare lenders for a no-closing-cost refinance:

  • Start with your current lender: Your existing mortgage lender is a good starting point. They may offer competitive refinance options to retain your business. Ask about their no-closing-cost refinance options and compare these with what you might find elsewhere.
  • Research online: Many lenders provide details of their refinance products online. Use mortgage comparison websites to gather information on various lenders’ offerings. These platforms often allow you to compare rates, terms, and fees side by side.
  • Check with local banks and credit unions: Local financial institutions sometimes offer better terms to members or local residents. Visit or call your local banks and credit unions to inquire about their no-closing-cost refinance options.
  • Consult mortgage brokers: Mortgage brokers have access to various lending sources and can often find deals that may not be widely advertised. They can help you sort through different offers and identify the most cost-effective option.
  • Consider online lenders: Online mortgage lenders can be a viable option as they often have lower overhead costs, potentially translating to better terms or lower rates. However, ensure you research their reputation and customer service record.

Understanding the Details of No-Closing-Cost Refinancing

Before you get excited about not paying anything upfront, sit down with your lender to discuss all the details. Be sure to keep an eye out for the following details:

  • Some loans are not actually “no cost”
  • Some loans solely cover lender fees, while others may cover all expenses, including third-party costs
  • Home loans differ from lender to lender, so it’s important to shop around
  • Lenders may pay different interest rates and costs on your behalf. Find out all the details before you commit.
  • Consider all the costs: title and appraisal, lender fees, credit report fees, escrow, home inspections, mortgage points and other third-party fees

Is a no-closing-cost refinance right for you?

Deciding on a no-closing-cost refinance requires weighing your immediate financial needs against the long-term effects on your mortgage. This option is attractive for its low initial fees, but understanding its overall impact is essential. For those planning to move or sell their home shortly, saving on upfront costs can offer immediate financial relief. It’s an appealing choice if staying in your current home isn’t part of your long-term plan.

However, a no-closing-cost refinance usually translates to a higher loan amount or increased interest rate, affecting the total cost over time. If you’re several years into your mortgage, like 10 years into a 30-year loan, the added expense from higher interest rates can surpass the benefits of initial savings.

Before deciding, it’s important to calculate how this choice will affect your monthly payment and compare the overall costs with those of a traditional refinance. Shopping around for the best deal will help you to align this financial decision with your overall goals.

A Closer Look at No-Closing-Cost Mortgage Deals

Now that you understand the positives and negatives of selecting a no-closing-cost refinance, here’s an example of how these loans may play out in a lending setting:

For example, you may be charged $4,500 in closing costs, the average cost for homeowners today. If you choose to pay this out of pocket, the $4,500 cost will remain static as a one-time charge.

On the other hand, if you skip those fees, that sum will be rolled into your mortgage bills each month over the duration of that loan. Over 30 years at 4.125% interest, the borrower will eventually pay a total of $7,851.

Meanwhile, over the course of five years, the borrower will wind up paying $6,000 after initially skipping the $4,500 closing fee.

Whether this is worth it or not is entirely up to you. If you’re planning to sell your home within the next couple of years, the immediate savings may be worth it for you to pay a bit more over two years.

You can take that saved money to invest in repairs, remodels, realtor fees, and other associated costs that accompany selling a home. Moving a home quickly on and off the market can save you other costs that make this type of loan right for you.

How to Spot a Bad No-Closing-Cost Refinance Deal

No-closing-cost loans are each different from one lender to another. By seeking different opinions and home equity options, you can ensure that you’re getting a good deal. Here are a few warning signs to look out for:

  • The loan is called “no cost” but it turns out you’ll have to pay for appraisals, title fees, escrow, property taxes, insurance, and prepaid interest.
  • The loan is called a “no lenders fee loan,” which means the bank will only cover just that—lenders fees, and nothing else.
  • Carrying out a refinance through a mortgage broker, who then adds on a lender credit, further increases your interest rate.
  • A bank uses “bundles” that tack on closing costs on top of the cost of the loan. These bundles further increase the size of the loan, as well as the interest rate, leading to a higher monthly payment over time.

Be aware of potential red flags and take your time when considering any type of home loan. This is especially true if the terms of the loan are unclear, and you are feeling pressured to make a decision before fully understanding the details of the loan. It’s always better to be cautious and well-informed before making a commitment.

5 Tips for Negotiating No-Closing-Cost Refinances

Negotiating the terms of your no-closing-cost refinance is key to getting a favorable deal. Focus on these effective strategies:

  1. Conduct thorough market research: Understand the current market rates and terms from various lenders. This knowledge positions you as an informed borrower, giving you an edge in negotiations.
  2. Leverage your creditworthiness: If you have a strong credit history, use this as a bargaining chip. Lenders may offer better terms to borrowers who present lower credit risks.
  3. Discuss customization options: Each borrower’s situation is unique. Talk to your lender about tailoring the refinance terms to suit your specific financial needs and goals, especially if you plan to stay in your home for a long time or move soon.
  4. Be prepared to walk away: If the terms offered don’t align with your needs, be ready to explore other options. Showing your willingness to consider other lenders can motivate your current lender to offer better terms.
  5. Review the final offer thoroughly: Ensure that all negotiated terms are clearly included in the final offer. A careful review before agreeing can save you from unexpected terms or conditions.

By applying these strategies, you can effectively negotiate and secure a no-closing-cost refinance that aligns with your financial objectives. Remember, your aim in negotiation is not just to lower costs, but to find a deal that supports your overall financial strategy.

Frequently Asked Questions

What are the average closing costs for a refinance?

The average closing costs for a refinance can vary depending on the location, property type, and loan type. Typically, closing costs for a refinance can range from 2% to 5% of the loan amount.

For example, on a $200,000 loan, the closing costs can be anywhere from $4,000 to $10,000. These costs include the loan origination fee, appraisal fee, title search and insurance, and other miscellaneous fees.

Can you negotiate closing costs on a refinance?

Yes, it is possible to negotiate closing costs on a refinance. While some costs, such as the appraisal fee or title search, are set by third-party providers and cannot be negotiated, other costs such as the origination fee or lender’s title insurance can be negotiated with your lender.

Here are a few strategies to negotiate closing costs on a refinance:

  • Shop around: Compare offers from multiple lenders and negotiate with them to see if they can lower or waive certain fees.
  • Timing: Closing costs tend to be lower during slow periods for the housing market.
  • Ask for a credit: Some lenders may offer a credit towards closing costs in exchange for a slightly higher interest rate.
  • Be prepared to walk away: If a lender is not willing to negotiate closing costs, it may be best to look for another lender that is more willing to work with you.

When would a no-closing-cost refinance be a bad idea?

A no-closing-cost refinance may not be the best idea in certain situations. Here are a few reasons why a no-closing-cost refinance may not be a good idea:

  • Short-term ownership: If you don’t plan to keep your home for a long time, you may not be in the house long enough to recoup the costs of the refinance.
  • Not enough equity: If you don’t have enough equity in your home, you may not be able to qualify for a no-closing-cost refinance.
  • Higher interest rate: If the interest rate is higher than the rate you already have, it typically does not make sense to refinance.
  • Limited budget: if you’re tight on budget, and the higher interest rate on the no-closing-cost refinance will put you in a difficult financial situation, then it’s not a good idea.
Anne Bouleanu
Meet the author

Anne Bouleanu is a freelance journalist based in Chicago. She has worked with outlets including the BBC, Bloomberg, and Al Jazeera, among others.