How to Refinance Your Mortgage without Closing Costs
You can refinance without closing costs, which are typically a few thousand dollars, by financing them instead. However, that increases the loan amount you’re borrowing, so you will probably pay more for it over the long run because it will be part of the loan you’re paying interest on.
What Are the Risks of Refinancing?
Refinancing isn’t without risks. One of the biggest ones is that paying down your current loan with home equity credit often incurs fees—if you check your mortgage agreement, there may be a provision that lets the mortgage lender charge you a fee for using your equity credit to pay down your loan. Crunch the numbers before you refinance, and make sure that the savings will cover the penalty.
There are usually additional fees you’ll have to cover, like bank fees and paying for an attorney to review the deal and handle paperwork. Look for a bank offering low-fee or free refinancing to avoid the fees—this could save you thousands of dollars.
You also need to make sure the refinance is a good enough deal to justify the closing costs. Use an online refinance calculator where you can enter information about your current mortgage and mortgage refinance, and determine how long it will take before the monthly savings from the refinance outweigh the closing costs. This is often called the “break-even point” and is usually a matter of years. If you don’t plan on staying in your house for much longer, then refinancing might end up costing you more money even if it comes with lower mortgage rates.
Refinancing also restarts the clock on amortization, so if you take out a new mortgage with a 30-year loan term, you’ll be making payments longer than you would have if you’d stuck with your original mortgage. For some homeowners, this is OK. However, if you’ve already been paying down your mortgage for 10 or 20 years, the extra interest might not be worth it unless you can refinance into a loan with a shorter loan term.