![]() ![]() Whether it’s due to the raised rate or to the increased principal, you’ll be paying more interest than if you’d paid closing costs upfront. This could be counterproductive, if your aim in refinancing is to score a better interest rate (at least 1 to 2 percent lower). Many lenders compensate for the lack of upfront closing costs by charging a higher interest rate. But if you’re only going to have the home for a few more years - less than 10 - you won’t bear the full cost of the higher rate or bigger principal balance. No-closing-cost refis are more expensive over the long-term. You can use the funds you would have spent on closing costs for other expenses, home renovations or investments. So that’ll happen faster if you skip that upfront outlay. When you pay closing costs to refinance, it can take a while for the new monthly payments to help you break even. The deal can go through even if you don’t have any savings.Įarlier break-even point. Put your wallet away: There’s no need to liquidate investments to come up with a few thousands in cash. No-closing-cost refinance pros and cons Pros of a no-closing-cost refinance If you’ve used Refinancing from one VA loan to another VA loan in an Interest Rate Reduction Refinance Loan (IRRRL), or VA streamline, the funding fee will be 0.5 percent. ![]() If it’s your first VA loan, you will pay a 2.3 percent funding fee. VA funding fee: If you’re refinancing a VA loan, you will have to pay a percentage of the new loan back to the Department of Veterans Affairs. If you’re doing an FHA streamline refinance, which converts one FHA loan to another, the fee is 0.1 percent. It is typically 1.75 percent of the loan amount. ![]() Mortgage insurance: Most FHA loans include an upfront mortgage insurance premium that you will have to pay. Title search: A lender will look up the property record of the home title to ensure there are no issues with property ownership or liens. Origination fee: Some lenders charge a fee to initiate the loan, which typically costs around 1 percent of the amount being borrowed. It usually ranges from $300 to $450 or more.Ĭredit check: Lenders often charge a fee to pull your credit report in order to determine whether you’re a qualified borrower. When it comes to the loan-related closing costs, they’re about the same, though.Īppraisal fee: The appraisal fee is charged when a professional appraiser inspects the home to determine its value before the lender extends a mortgage offer. Overall, refis tend to run cheaper, closing cost-wise, than new purchases because some expenses (like transfer taxes) won’t exist. Average refinance closing costsĬlosing costs can run anywhere from 2 percent to 6 percent of the loan’s principal amount 3 to 5 percent is the most typical range. That includes charging a higher interest rate, which can cost more over the course of the full life of the mortgage.Ī no-closing-cost refinance may also include the fees in the financing, so instead of charging them upfront, the fees would be spread over the life of the loan. No-closing-cost refinancing eliminates closing costs, but there are trade-offs. How does a no-closing-cost refinance work? Or, the lender might charge you a higher interest rate on the same principal balance. Instead, the expenses are rolled into the loan itself, increasing its principal (and thus, the amount of interest you’ll pay on that principal). In a no-closing-cost refinance, no upfront payment is required. In a typical refinance, a borrower pays a lump sum at closing to cover costs such as the appraisal fee, title search, title insurance and various loan application/origination fees. You might consider a no-closing-cost refinance if you plan to stay in your home for a foreseeable, relatively shorter period of time. But it does let you delay them: Instead of paying them upfront in cash, you’ll finance these expenses as part of your loan. A no-closing-cost refinance doesn’t let you avoid closing costs entirely. However, it’s possible to duck these expenses to a degree via a no-closing-cost refinance. A refi is really just getting a new mortgage - and so, the closing costs associated with a mortgage refinance are roughly the same as the first time around. Now that you’re refinancing your mortgage, get ready to get reacquainted with them. When you obtained a mortgage, you probably remember paying closing costs all too well. ![]()
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