Pros & cons of no-closing-cost refinancing

by Jodie Franklin 07/09/2023

Refinancing your home can have a plethora of benefits. Among lowering your monthly payment, refinancing your home can also allow you to borrow against your home’s equity. However, refinancing in the beginning can have significant closing costs, such as application fees, loan origination fees, mortgage insurance and interest - especially when involving mortgage points.

Your new mortgage’s closing cost could have upfront fees of anywhere from 2% to 5%. However, there is another type of refinancing option available for homeowners who’d prefer to roll their closing costs into their monthly payments.

Here are the pros and cons of no-closing-cost refinances:

Pro: No closing costs

With no-closing-cost mortgage refinancing, you typically don’t have any upfront closing costs. In fact, your closing costs are rolled into your monthly mortgage payment, so you don’t have to worry about interfering with your current budget.

Con: Higher monthly payment

Because there are no upfront closing costs for a no-closing-cost refinance option, you may have higher monthly payments than if you’d chosen a cost-refinance method. However, higher monthly payments may not be the agreed term for rolling your fees into your new mortgage. Higher interest rates or a longer loan term are also viable options.

Pro: Immediate budget impact

If you’re taking out a no-closing-cost refinancing loan, you’re probably in the market for holding on to your budget at that time. This refinance option allows you to maintain your current budget and can give you the cash needed for other projects, responsibilities or emergencies.

Con: Monthly budget impact

If you are saving for something or budgeting for a big project, you could be set back a bit by the amount you’ll have to pay on your new monthly mortgage payment. Because the fees are rolled back into the loan itself, your monthly payments may be higher than originally anticipated, putting a hurdle in your savings plans.

Regardless of your reasoning for pursuing a no-cost-refinancing option, knowing both sides of the coin can help you make a more informed decision. Both types of refinancing are great options, and if you have questions about which to choose, try speaking with your agent or a finance professional employed with your current mortgage lender.

About the Author
Author

Jodie Franklin

I love helping people find their dream home or sell their house in order to achieve their next goals. I have been working hard for my clients for over 18 years throughout southeast Michigan. I have experienced every kind of transaction there is. 

Helping my community and being involved is extremely important to me. I am Past President of the Michigan Ability Partners board, which helps Veterans and people with disabilities reach independent, self-supported, and satisfying lives. I have also been a member of the City of Milan Tax Review Board and Zoning Board, and involved in Milan Main Street. I have been a major sponsor of events for Michigan Ability Partners, Aid in Milan, Milan Main Street, and many more organizations that work to make our communities better. 

I was 2018 President of the Ann Arbor Area Board of Realtors, Realtor of the year in 2016 for AAABOR and nominee for Michigan Realtor of the Year. I serve on many committees with the local board, state board and was a member of the Housing Opportunity Committee for the National Association of Realtors (2018-19). I am currently serving my second term as a Michigan Realtors Board of Directors. 

I have liked in Milan for over 20 years and enjoy living here with my husband Cliff, son Evan, and dog Rosie.