Is There Such a Thing as a No Closing Costs Mortgage Refinance?

Refinancing your existing mortgage can be an expensive proposition. Historically low interest rates over the last five to ten years make it difficult for many people with a relatively recent mortgage to save significant money through a refinance. In many cases, what little money is saved through a marginally lower interest rate is cancelled out, or even exceeded, by the many costs and fees associated with the refinance process. For this reason, you may often see the term no closing costs mortgage refinance in various advertisements, which would lead one to believe that the refinance will cost them nothing. Of course, a prudent person will consider the old adage that if a thing seems too good to be true, it probably is, and will understandably wonder if a free refinance falls into that category.

Originating any loan will cost money, and something as expensive and complicated as a home loan will be more expensive than something more straightforward, like a car loan. Almost any loan will necessitate a credit check on the prospective borrower and a modest fee is usually charged for that service. Among the unique expenses associated with a residential mortgage are things like the appraisal of the physical property to ascertain its fair market value and a title inspection to ensure there are no existing claims against the deed. Expenses associated with the escrow account as well as notary charges and assorted additional fees are also incurred during the closing process.

Keeping this in mind, it is unlikely that you will find a bank willing to absorb these fees as part of the mortgage origination process. More likely, when the term no closing costs is bandied about, the real meaning is that there will be no closing costs charged to the borrower up front. Instead, the many and varied expenses will be rolled into the amount borrowed and will be repaid in monthly installments over the life of the loan. While this is certainly a help to cash-strapped borrowers who may have difficulty paying the $1,000 or more normally associated with a refinance, it is important to keep in mind that you are merely borrowing that money and will pay interest on it over the entire life of the mortgage.