Refinance Mortgage with No Closing Costs
Refinancing a mortgage involves replacing your current mortgage with a new one.
Homeowners decide to do this for a variety of reasons.
Most commonly, it is because the housing market has changed and lenders are offering lower mortgage rates.
Refinancing is attractive in these situations because it can lower monthly payments, shorten the term of their loan, or in some cases do both.
Additionally, homeowners who have built up sufficient equity can use the refinance process as an opportunity to remove equity in the form of cash.
The borrowed amount is then added to the new loan balance in a process called cash-out refinance.
What Are the Advantages?
A cash-out refinance provides immediate funds to the borrower, which can then be used to reinvest in the property through home renovations.
However, the borrower does increase their overall mortgage amount when converting equity into cash.
That can be a high-risk financial move if the borrower isn't financially savvy or doesn't have a good financial reason to convert the funds.
Another important advantage in refinancing a mortgage is switching lenders, especially if the new lender offers a better rate or a no-closing-cost loan.
A borrower may choose to switch lenders if they are dissatisfied with the current provider for whatever reason.
Other advantages to refinancing a mortgage are changing from an adjustable-rate mortgage (ARM) to a fixed-rate loan, particularly if interest rates are on the rise—that takes the guesswork out of calculating what the adjusted rate will be on once the ARM is scheduled to change.
Switching from a 30-year mortgage to a 15-year loan can also be a financial advantage if the borrower wants to pay off their mortgage quickly.
As an alternative, a borrower can reduce their mortgage payments by making additional principal payments on a monthly basis, an option most lenders extend.
When Should You Do It?
Timing plays a key role in deciding to refinance a mortgage.
Beyond obtaining a lower interest rate, changing to a lower fixed-rate mortgage from an adjustable-rate one could make financial sense depending on market fluctuations.
If interest rates are at historical lows, refinancing could be an excellent choice.
Another smart time to refinance is before too much of the interest has been paid on the mortgage, for instance, refinance at five years into a 30-year loan instead of at 15 years.
Are There Any Disadvantages?
A primary disadvantage of refinancing a mortgage to convert equity into cash is the possibility of increasing personal debt instead of reducing it.
Many borrowers opt to refinance in order to pay down credit card debt, yet if they aren't financially disciplined enough to avoid overspending, they can quickly accrue new balances on their credit cards.
Another disadvantage of refinancing a 30-year loan to a 15-year loan is the probability of increasing your monthly mortgage payments.
As with any consideration in mortgage refinancing, a borrower will want to understand total closing costs and the different options on how to pay them.
What Does the Process Look Like?
Just as with a regular, first mortgage, a refinance generally includes a series of closing costs.
These can amount to thousands of dollars, between credit fees, appraisal fees, points (which is an optional expense to lower the interest rate over the life of the loan), insurance and taxes, escrow and title fees, and lender fees.
These costs can vary from state to state. In Florida, for instance, there are no state taxes assessed on mortgage transactions.
To entice potential refinancers, some lenders will have special offers that waive closing costs.
What this does is eliminate the need of the borrower to bring cash to closing to cover loan processing costs.
The lender must recoup the costs somehow and will likely do so by either offering a higher interest rate on the loan or by rolling the costs into the total mortgage amount.
The borrower will also want to make their money back on the closing costs.
This is accomplished by remaining in the home for the period it takes to break even on the total closing cost paid, which is typically a period of two years.
The closing date of the loan will determine how much interest the borrower will pay for that month.
The accrued interest on the loan is due for the total amount of days between the closing date of the loan and the end of the month.
If the closing date is at the beginning of the month, the borrower will pay more in accrued interest.
Some experts advice closing at the end of the month to avoid paying the additional interest while others express concern with scheduling an important financial transaction at the end of the month, as it could be delayed into the next one.
Final Thoughts
When a homeowner combines this option with a better mortgage rate, they could see enormous savings compared to continuing with the original mortgage.
If the option of no closing costs is unavailable, another alternative might be rolling them into the balance of the refinanced mortgage.
This could mean a higher interest rate over the life of the loan, and several years to recoup the new closing costs.
However, if their plan is to remain in the house for less than five years, this could be a great choice.
Another reason to avoid closing costs might be to obtain more cash for renovations.
Not every lender will offer the option, but below, we've compiled a list of the best mortgage refinance lenders with no closing costs.
loanDepot claims to be the second-largest consumer non-bank lender in the U.S., and most of this is in mortgage loans. They offer conventional mortgages, FHA and VA loans, and HARP refinances across all fifty states. They have an A rating from the Better Business Bureau, with good reviews across the board, emphasizing their efficient, fast service. If there's enough equity in your home, they assure their customers that they can add all the fees and pre-paid items into their new loan. Alternatively, there are also no-cost and low-cost refinance options that can lower your rate and payment with no or minimal investment.
SoFi ensures that closing costs are always kept at a minimum by never charging application, origination, or lender's fees. In just two minutes, SoFi connects you to their network of lenders and obtains a quote for your mortgage refinance. Typical applications close in less than a record thirty days, and if you're a member, you can also receive exclusive discounts. They're more limited in the type of loans they provide, but with a 15-year, 30-year, and a 7/1 adjustable rate mortgage (ARM) option available, every homeowner is sure to find a loan that fits their needs.
LendingTree provides homeowners looking to refinance their mortgage with the ability to access a variety of different lenders from their network. By searching through live rates, consumers can get multiple offers, in order to obtain the most cost-effective loan and compare across a number of different direct lenders. Some of these lenders have offers in which they waive closing costs altogether, whereas others can roll them into the loan amount. Another good reason to consider LendingTree is that the application fee is always free.
J.G. Wentworth helps homeowners obtain almost any type of mortgage for their refinance needs, including traditional fixed-rate mortgages, FHA, VA, or USDA loans, and the HARP program. They provide a series of helpful tools on their websites, such as refinance calculator, online chat with their representatives, and thoroughly comprehensive articles and guides. Though they don't guarantee that they can waive closing costs, it is one of the options available. Regardless, they offer some of the most competitive mortgage refinance rates in the industry, and exceptional customer service, paired with an easy-to-follow application process.
