What is a “no closing cost” refinance?

The phrase “no closing cost refinance” is used in two different ways.  There WILL be costs to close the loan, but “no closing cost” refers to how they get paid.  Instead of paying the closing costs in cash, these costs are covered by either rolling them into the new loan balance or accepting a higher interest rate.  Here is how it works:

• Rolling Costs into the Loan: The closing fees are added to your new, higher mortgage loan balance, meaning you pay interest on those fees over time. This is generally not our preferred approach, because you are financing the closing costs over the life of the loan, but some lenders promote this approach which enables them to advertise lower, more appealing rates.
• Lender Credits (Higher Rate): With this approach, we pay your closing costs with a lender credit you receive in exchange for an interest rate for your new loan that is slightly higher than the rate you would receive if you paid the closing costs yourself..

What Is A Lender Credit?
A $300,000 loan amount will typically have $3200 to $3300 in closing costs.

When we shop for a rate for your loan, a rate sheet will have MANY rates available.  On the rate sheet example below, a rate of 6.250% doesn’t cost any points and doesn’t generate a lender credit.   This would be our general suggestion for a purchase mortgage.  But by taking the rate up .250%, you can receive a lender credit that covers virtually all of your closing costs.

When your refinance closing costs are paid by a lender credit, your savings are IMMEDIATE!  And that is why in most situations, we think this is the best choice.  Kinsey and I would be glad to discuss this in more detail if you have any questions about this approach…just give us a call!

Rate Sheet Example