Mortgage refinancing closing charges average between 2% and 5% of the loan amount. A no-closing-cost refinance mortgage loan, however, allows you to roll these costs into your new loan without incurring any additional out-of-pocket charges.
Although you won’t have to pay anything out of pocket for closing costs with a no-closing-cost refinance, you will have to include them in the loan amount. If you want to live in your current residence for a shorter time frame, you may want to look into a no-closing-cost refinance. Let me give you the rundown so you can make an informed choice.
What is a no-closing-cost refinance?
A no-cost refinance mortgage loan generally is known as the kind of mortgage refinancing that all of the cost that is associated with the loan is taken by the lender instead of moving down to the borrower.
However, in return, the lender increases the interest rate of the loan. It’s a wonderful option that will help homeowners to decrease their monthly mortgage payments when they don’t have the cash to pay for the closing costs.
How does a no-closing-cost refinance work?
There are advantages and disadvantages to no-closing-cost refinancing. This may involve a higher interest rate, which adds up to more money over the lifetime of the mortgage. Fees may be included in the financing for a no-closing-cost refinance instead of being charged all at once.
Types of refinance closing costs
There isn’t just one fee associated with refinancing; rather, there are a number of different costs that come into play. Most of the funds you’ll be expected to fork over at closing will go toward paying for your lender’s fees and any third-party services required to complete the loan’s underwriting and closing. Taxes could add a noticeable sum to your expenses.
From the Federal Reserve’s perspective, we have compiled a list of some of the fees you can anticipate seeing in the refinancing process, along with estimates of how much each will cost.
Taxes:
Average cost: Varies
When the refinancing is finalized, you may have an outstanding property tax bill. Prices are different for every person because of factors like their location and the cost of their home. Six months of property taxes are typically due at closing, as stated by Bank of America.
Nonrefundable Application Cost:
Variable prices between: $75 and $300
It will cost you money to apply for another mortgage. In most cases, this charge cannot be reversed.
Loan origination fee:
Up to 1.5% of the loan’s principal may be required in fees.
Although not all lenders impose this fee, some do. A 1.5% origination fee on a $200,000 mortgage balance would add $3,000. This could be a significant increase in your overall closing costs.
Fee for Appraisal:
If expenses are incurred, they could run between $300 and $700.
A new appraisal may be necessary if it has been a while since your home was valued. A certified appraiser will inspect your house and calculate its current market value.
Title search and insurance:
Price: $700-$900
Lenders will conduct a title search to verify your ownership and look for encumbrances. Lenders can rest easy knowing that their investment is safeguarded by title insurance in the event of any title-related issues.
Cost of the Survey:
Depending on the situation, prices can go up to $400.
A lender may insist on a survey if it has been a while since your home was last surveyed. Simply put, this ensures that your house and all of its outbuildings are located where the title claims they are.
The Cost of an Attorney’s Review and Closing:
Ranging from $600 to $1000
Your closing costs will include payment to the title company or attorney who handled the closing of your home.
Penalty for prepayment:
Costs may range from one month’s interest payments up to six months’ payments.
The early repayment of a loan may result in charges from some lenders. Since a mortgage refinances will result in the early repayment of your current loan, your current lender may assess a prepayment penalty.
There may be a fee for paying off your loan early, but not always. Inquire as to whether or not the prepayment penalty applies to your current mortgage and, if so, how much it would be.
No-closing-cost refinance pros and cons
Advantages
- There is no up-front cost
- If you plan on staying in the house for only a few years, you may be able to save money.
- quicker time to profitability, which is great for wholesalers.
- Makes it possible to put money aside for future usages, such as home improvements.
Disadvantages
- Long-term residence can increase associated costs.
- Potential for mortgage insurance premiums
- has a higher normal monthly cost
- and usually involves a higher rate of interest
When to choose a no-closing-cost mortgage
It is critical to assess the breakeven point for any closing fees as well as how long you want to maintain the property before profiting from it.
If you know you’ll be relocating within the next year, but it will take you two or three years to repay your closing costs, it may make financial sense to cancel your travel for the time being and pay up a little more interest on your loan.
When it doesn’t make sense: If you want to remain in the house for decades but will repay your original closing costs in two or three years, a no-cost closing is a bad option because you’ll end up spending more money in the long run.
“In real estate deals, the devil is in the details, and understanding the exact cost of a no-cost closing is the key to success. It’s not just about the closing costs, but also about the effect on your long-term financial objectives.” – Suze Orman, Personal Finance Expert and Bestselling Author.
sometimes it’s not about the closing cost but the impact it will leave on your pocket in the long run so choose wisely.
Article reference:
https://www.businessinsider.com/personal-finance/average-refinance-closing-costs?r=US&IR=T
https://www.bankrate.com/mortgages/is-no-closing-cost-for-you/#what-is
