A no-cost mortgage refinance is a refinance where the borrower doesn’t pay any out-of-pocket closing costs; no appraisal fee, no origination fee, no title insurance charge, no recording fees paid at closing. Instead of eliminating those costs, the lender may cover closing cost by charging a slightly higher interest rate than you’d get on a refinance where you paid all fees upfront. A no cost refinance removes the barrier of coming up with several thousand dollars in cash, or adding these costs to your loan balance, to refinance. Reducing the cost to refinance allows the borrower to use a mortgage as the financial tool it is intended to be. If someone expects to sell or refinance again within 2-4 years, a no-cost refi can save more money overall than paying costs upfront and slowly earning them back through a lower rate, since there’s no upfront cost to “earn back” in the first place you avoid the multi-year breakeven period needed to recoup closing costs through interest savings.
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