Although you often pay a one-off lump sum when closing, you can also finance closing costs to reduce the amount you have to pay in advance. Can you refinance without closing costs?

What are the closing costs?

Closing costs are a set of expenses associated with buying or refinancing a home. These costs are independent of the home purchase price and may include:

  • Fees for the lender: the lender charges a fee to set up the loan and consider the application. These fees will vary depending on the lender and type of loan. You will also pay interest on your mortgage in the first month.
  • Third Party Fees: Your lender works with other companies when you get a mortgage, e.g. Appraiser, title company, and credit services. Closing costs will be used to cover these fees.
  • Fees for homeowners: As homeowners, you can incur various costs, including property taxes and home insurance. Tax and insurance payments are placed on a trust account. If your home belongs to an association of homeowners, fees may also be paid to it as part of the closing costs.
  • Mortgage points: when closing, the lender can offer the option of paying mortgage points, also known as rebate points. This is a fee that you pay directly to your lender to lower your interest rate and monthly payment.
Can you refinance without closing costs?

How refinancing works without closing costs

Refinancing closing costs may range from 2% to 5% of the main balance. These include quote fees, title search, recording fees and everything else. But lenders sometimes offer “no closing” mortgages to qualified borrowers. This can be achieved in several ways.

Get a higher interest rate. The lender can cover refinancing costs without closing costs by raising mortgage rates. In this way, the lender will pay back closing costs, and perhaps much more, over time, while encouraging more loans.

Advantages of not refinancing closing costs

  • The most obvious is to avoid any initial fees, which means you don’t have to pull out your checkbook or empty your savings account before you get a new loan.
  • Submitting closing costs to your loan balance can save you thousands of dollars in advance and only slightly increase your monthly mortgage payment.
  • Removing closing costs from the equation also makes it easier for borrowers to compare interest rates that will deliver the most savings, especially if the lender intends to forego closing costs in exchange for a higher interest rate.

Disadvantages of not refinancing closing costs

  • You will end up with higher monthly payments, either by accruing closing costs on your loan balance or by obtaining a higher interest rate in exchange for the lender giving up closing costs.
  • If you don’t plan to sell your home, you can easily end up paying much more over the entire term of the loan than you saved on closing costs.
  • Your loan may be subject to a prepayment penalty to ensure that the lender can recover the cost of the loan in case you decide to repay the loan.


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