Exploring a No Closing Cost Refinance for a 15-Year Mortgage

Published March 27, 2022

Purchasing or refinancing a home can be expensive. So let's explore your options and see if a no closing cost refinance 15-year mortgage can make the process less costly for you. This type of loan ensures that you will not pay closing costs in a lump sum at the beginning of the loan term. That said, a no closing cost refinance 15-year mortgage doesn't mean that the lender covers your closing costs, nor are the fees forgiven or forgotten. Instead, you'll pay those fees over time. Still, if you're interested in a mortgage refinance and are worried about closing costs, this could be a great option.

What are closing costs?

When you purchase or refinance a home, you need to pay a combination of fees called closing costs. These costs typically account for approximately 2-5% of your principal balance. Your home's purchase price will not include these costs, so you should keep them in mind as you figure out your home financing plan. Closing costs most often include: 

• Appraisal fee: A professional appraiser examines the home to report its value.

• Title search: Your lender will find the property record for the home's title to ensure the property ownership is clear and has no liens. 

• Credit report fee: A credit check helps you qualify for a refinance.

• Mortgage insurance: Some loans require you to pay an upfront mortgage insurance premium.

This is a non-exhaustive list of potential closing costs that you might encounter as you try to purchase or refinance your home. These costs can add up and place extra stress on an already stressful purchase. Luckily, a no closing cost refinance 15-year mortgage makes it easier to afford your home in the short term. For example, if you don't have enough cash to pay for these fees at closing, a no closing cost refinance 15-year mortgage allows you to roll the costs over into monthly mortgage payments. 

What exactly does it mean to have a no closing cost refinance?

How does a no closing cost refinance 15-year mortgage work? First, you'll avoid paying closing costs when you take out the loan, but you'll still pay the fees at some point during the loan's term. You can distribute these costs in your loan repayment plan with a couple of different options:

• Increased interest rate: Since you've chosen a no closing cost refinance 15-year mortgage, you probably won't qualify for the lowest possible interest rate. Your lender might have to raise the refinance rate to make up for the lost closing costs. 

• Increased loan principal: If you choose this option, you'll add the closing costs to your principal loan balance. This means that the costs are added to the overall amount you borrow, and you'll pay for them in your monthly payments. 

You'll still end up paying the closing costs in full, but you can use a no closing cost refinance to lessen the initial financial blow. 

When does a no closing cost refinance on a 15-year mortgage make sense?

Choosing a no closing cost refinance 15-year mortgage makes more sense for some borrowers than others. You should consider a no closing cost refinance if you would rather factor in higher monthly payments instead of paying in bulk at the outset. As with any financial decision, this type of loan isn't suitable for everyone. Let's take a look at some of the situations in which a no-closing cost refinance would make sense:

• Homeowners hope to sell and move within a 5-year window. If you're considering moving before you hit your breakeven point on a mortgage, you should consider a no-closing cost refinance. A higher interest rate could cover the amount you have to pay for closing costs within a 5-year timeline. As a result, you can avoid paying a lump sum on closing costs at the outset since you will not stay in the home long enough to pay more in interest. Were you hoping to move soon? This just might be the solution for you.

• Homeowners want to renovate but don't have the cash to make it happen. Some homeowners choose to finance a renovation by taking out a home equity loan. In this instance, you could avoid taking out a home equity loan by selecting a no closing cost refinance. You'll likely pay less with a higher interest rate and no closing costs than you would for a home equity loan. As you're weighing your loan options for a home renovation, you might consider a cash-out refinance.

• Homeowners who want to transition from an adjustable-rate mortgage (ARM) to a fixed-rate mortgage. An ARM has a variable interest rate, meaning your interest rate changes within a pre-determined amount of time. A fixed-rate mortgage's interest rate stays the same throughout the entire loan term. If you currently have an ARM and your interest rate is about to increase, and you can't afford the closing costs of a refinance, you could use a no closing cost refinance to switch to a fixed-rate mortgage. 

Do you fit into one of these categories? It might be the right time to consider a no closing cost refinance 15-year mortgage. Every financial decision deserves some consideration, so you're doing the right thing by researching whether this loan fits your financial profile. If you're unsure whether this loan makes sense for your financial situation, we can help you make the best choice for your future.

Is a no closing cost refinance 15-year mortgage right for you?

Now that you understand what a no closing cost refinance 15-year mortgage is, you can decide whether this loan fits your financial plan. You're not alone in that decision! Experts here at American Financing are ready to help you figure out what makes the most sense for your home purchase or refinance. 

When you're ready to explore your options, our mortgage consultants will help you determine your loan eligibility, use a mortgage calculator, and find a loan program that fits your needs. So take charge of your financial future today. You can talk through your decision by calling (800) 910-4055 or scheduling an appointment online.