A no-closing-cost refinance can be a great way to lower your monthly mortgage payments or change your loan terms without paying thousands of dollars upfront. But while you won’t need to bring cash to the table at closing, that doesn’t mean the refinance is free.
Instead, the costs are typically rolled into your new loan balance or offset by a slightly higher interest rate. For many homeowners—especially those planning to move or refinance again in a few years—a no-cost refinance can make good financial sense. The key is understanding how the costs are structured and how they affect your long-term savings.
Key Takeaways
- No-cost refinances don’t require you to pay closing costs upfront but will result in a larger loan balance or higher interest rate.
- Over the life of the loan, a no-closing-cost refinance is likely to cost more than if you were to pay for the expenses at closing.
- Homeowners planning to sell within the next few years may still come out ahead with a lender-paid no-cost refi.
What Is a No-Closing-Cost Refinance?
When you refinance a mortgage, you incur closing costs associated with originating the new loan. With most conventional lenders, these expenses run between 2% and 4% of the total amount you’re borrowing.
However, many mortgage companies offer another option: a no-closing-cost refinance.
But while these loans may not require you to come out of pocket with the cash to close, they’re not free; the cost is simply moved elsewhere. The lender will either add the amount to your mortgage balance or charge you a slightly higher interest rate to recoup the expenses through larger monthly payments.
“No-closing-cost loans can be a useful tool – but only in the right situations. The term can be misleading because those costs don’t just disappear. Instead, they’re either rolled into the loan balance or offset by a higher interest rate, which allows the lender to give a credit at closing,” states Parker McInnis, owner of Speedy Sale Home Buyers.
How Does a No-Closing-Cost Refinance Work?
While no-cost refinances remove the need to pay closing costs upfront, it’s important to understand how those costs are covered; typically through a higher rate or loan balance.
Some mortgage companies will add your closing costs to the balance of your new loan. For example, if you’re refinancing a $300,000 mortgage and would incur $7,500 in expenses, you would pay nothing out of pocket but end up borrowing $307,500.
Other times, lenders may offer credit to cover your closing costs in exchange for a slightly higher interest rate on your loan. This could mean refinancing at 6.75% instead of the 6.25% you would be eligible for if you were to pay these expenses yourself.
Here’s what the numbers could look like on a 30-year fixed-rate loan:
| Self-Paid | Added to Loan | Lender-Paid | |
| Due at Closing | $7,500 | $0 | $0 |
| Loan Balance | $300,000 | $307,500 | $300,000 |
| Interest Rate | 6.25% | 6.25% | 6.75% |
| Monthly P&I | $1,847 | $1,893 | $1,946 |
| Lifetime Interest | $364,975 | $374,099 | $400,486 |
All numbers are for example purposes only. Your costs may be different.
Pay for Closing Costs By Wrapping Them Into the Loan
Rolling your closing costs into your new loan balance does not generally change your interest rate but does increase the amount you need to borrow. This can be an attractive option for borrowers who don’t have the funds to pay for closing costs upfront but would still benefit from taking a slightly higher loan balance.
While this method involves borrowing extra against your home’s equity to pay closing costs, it is not considered a true cash-out refinance, which would usually come with a higher interest rate. Instead, this type of loan is called either a “no cash-out” or “limited cash-out” refinance, depending on the lender you use.
How do your payments and interest costs differ with a larger loan balance compared to paying for closing in cash? Let’s look at a sample 30-year loan at 6.25% with a balance of $250,000 and borrower-paid closing expenses against the same rate for a loan of $256,250 with closing costs rolled in.
| Closing Cost Structure | Loan Balance | Interest Rate | Monthly P&I | Lifetime Interest |
| Paid at Closing | $250,000 | 6.25% | $1,539 | $304,145 |
| Financed | $256,250 | 6.25% | $1,578 | $311,749 |
Pay Attention to Your Loan-to-Value Ratio
When rolling closing costs into your new mortgage balance, it’s important to consider your loan-to-value (LTV) ratio. This is the percentage of your home’s total value you’re borrowing.
With conventional loans, an LTV above 80% requires you to pay monthly mortgage insurance premiums. If a no-closing-cost refinance puts you above that threshold, you’ll likely want to consider delaying your refi until the LTV would be 80% or less.
A higher LTV can sometimes equate to higher interest rates. However, borrowers wrapping a relatively small amount of closing costs into their loan are unlikely to see significant changes. Still, ask your loan officer how this could impact the quote you receive.
In some cases, homeowners with little or no existing equity may be unable to wrap their closing costs into their refinance as lenders have a maximum allowable LTV. This loan-to-value limit can be as high as 97% with conventional mortgages. In comparison, FHA-backed refinances allow up to a 97.75% LTV.
Related: Conventional Loan Refinance Requirements in 2025
Pay For Closing Costs With a Higher Interest Rate
You can also accept a higher interest rate which result in lender credits and lower or no closing costs. Lender credits are the opposite of lender discount points: They give you money toward closing instead of costing you money. But in return, they raise your rate instead of lowering it. Accepting a lender credit often increases your rate by 0.25% to 0.5%.
However, a higher rate means a higher payment. This approach can be advantageous for some borrowers – particularly those planning to sell soon or who otherwise do not intend to keep the new loan for long.
For homeowners currently locked into a much higher rate, using lender credits to obtain a no-closing-cost refinance can be a win-win situation as they can still lower their monthly payments, albeit not at the best available rate, while not paying anything out of pocket.
So, how does accepting a higher interest rate in exchange for lender credits compare to paying for closing costs yourself? Let’s look at a $250,000 30-year loan at a rate of 6.25% with borrower-paid closing costs and the same loan at 6.75% with lender-paid closing costs.
| Closing Cost Structure | Loan Balance | Interest Rate | Monthly P&I | Lifetime Interest |
| Borrower-Paid | $250,000 | 6.25% | $1,539 | $304,145 |
| Lender-Paid | $250,000 | 6.75% | $1,622 | $333,738 |
All figures are for example purposes.
In this scenario, you save money at closing but end up paying nearly $30,000 more over the life of the loan. However, most people keep mortgages just seven to 10 years, so extra interest costs may be considerably lower.
How we source rates and rate trends
Rates based on market averages as of Dec 02, 2025.Product Rate APR 15-year Fixed Refinance 5.37% 5.42% 30-year Fixed Refinance 6.35% 6.37%
Are No-Closing-Cost Refinances Available for FHA, VA, and USDA Loans?
In most cases, no-closing-cost refinances are available for government-backed loans such as those insured by the FHA, VA, and USDA. Like conventional mortgages, you will find lenders offering no-cost refinances where you can either include these expenses into your new loan balance or receive lender credits in exchange for a higher interest rate.
The exception is the FHA streamline refinance, which does not allow closing costs to be added in. Other streamline programs, such as the USDA Streamlined-Assist and the VA Interest Rate Reduction Refinance Loan (IRRRL), permit you to roll in your closing expenses.
Understanding Closing Costs
What are the closing costs typically associated with refinancing your mortgage? In most cases, they’ll be similar to the expenses incurred when you originally obtained your home loan, including:
- Lender origination/processing fee: 0.5% to 1% of your balance
- Title services/insurance: 0.5% of your balance
- Appraisal costs: $300 to $600
- Document recording fees: $100 to $200
- Credit report fee: $100 to $200
- Optional lender discount points: 1% of your balance per point
- Prepaid property taxes and homeowners insurance: varies by location
Keep in mind that these expenses will not be the same for all borrowers. Your actual costs will vary depending on the lender you choose, the size of your loan, and the customary fee structure in your local market.
Note: You likely have an escrow account with your current lender for prepaid expenses. These funds will be returned to you a few weeks after refinancing. As such, some borrowers float these costs. This means they pay them out of pocket then receive a similar amount a few weeks later. This helps them avoid unnecessarily adding to their loan balance or increasing their interest rate further.
Additional Closing Costs for Government-Backed Loans
In addition to the typical expenses, government-backed mortgages have their own unique fees, which are also due at closing. These can either be paid upfront at closing or rolled into the total loan amount.
- FHA Loans: 1.75% upfront mortgage insurance premium (UFMIP)
- VA Loans: 0.5% funding fee for IRRRL refis, 2.15% to 3.3% for VA cash-out refis
- USDA Loans: 1% upfront guarantee fee
Calculating the Break-Even Point
One method homeowners use to determine whether it’s practical to refinance is to calculate their break-even point. This is how long it would take for your cumulative monthly savings to outweigh the closing costs attached to your new loan.
For example, if refinancing would save you $250 per month but cost $7,500 at closing, your break-even point would be 30 months ($7,500/$250=30).
If your closing costs were $7,500 but you were only reducing your monthly payments by $150, your break-even point would be 50 months ($7,500/$150=50).
Generally speaking, refinancing is a wise decision if you plan to keep your new mortgage for longer than the break-even point.
The Reverse Break-Even Point on a No-Cost Refinance
The break-even calculation works slightly differently with a no-cost mortgage refinance since you aren’t paying closing expenses upfront. Instead, you’ll want to focus on the reverse break-even point: the amount of time it will take for your added costs to total more than if you were to pay for closing out of pocket.
For example, if your loan has closing costs of $6,000 but you can obtain lender credits to cover this amount in exchange for $100 higher payments, your reverse break-even point would be 60 months ($6,000/$100=60). Here, you will come out ahead if you plan to keep your loan for fewer than five years.
Closing Costs on a Cash-Out Refinance
Planning to cash out some of your built-up equity as part of your refinance? Borrowers often choose to deduct their closing expenses from the cash they receive, effectively creating their own no-cost cash-out refinance.
For example, if you’re cashing out $40,000 of equity and have closing costs of $10,000, you would receive $30,000 when funds are disbursed.
Keep in mind that cash-out refinances typically have lower loan-to-value limits than standard no/limited cash-out refis. For conventional and FHA cash-outs, this limit is 80%. While VA guidelines allow you to cash out up to 100% of your equity, most lenders set their limits at 90%. The USDA loan program does not offer a cash-out refinance option.
Some mortgage providers may also offer lender credits on cash-out refinances, which could appeal to homeowners with specific cash needs and limited equity available.
Real-World Scenarios
How might a no-closing-cost refinance work for your individual borrowing situation? Let’s talk about a few real-world scenarios involving different types of homeowners and how a no-cost refi could impact them.
The Short-Term Homeowner
The break-even point works in reverse with no-cost refis. The shorter the period you plan to keep your home, the more beneficial the loan becomes.
For example, accepting a payment of $100 more per month in exchange for $5,000 in closing cost credits would have a reverse break-even point of 50 months. If the borrower sold after three years (36 months), their effective cost would only be $3,600, saving them more than 25% of the total closing expenses.
The Cash-Flow Conscious Homeowner
Sometimes, borrowers may need to refinance to lower their monthly payments to improve cash flow and balance their monthly budget. If funds are tight, the homeowner may be unable to pay closing costs or want to keep their limited savings on hand for emergencies.
In this situation, the reverse break-even point may take a backseat to the borrower’s immediate cash flow needs, regardless of how long they plan to keep their loan.
The Long-Term Homeowner
Let’s look at an example of a long-term homeowner whose payment is $100 higher due to accepting lender credits. They received $5,000 in closing costs.
For long-term homeowners, the additional interest paid over time may ultimately outweigh the value of the upfront credit, making this option less cost-effective in the long run.
After 50 months (just over four years), they will have paid more in extra interest, with that figure only continuing to grow as their mortgage matures. After ten years of payments, this would result in spending an additional $7,000 more than had they paid their closing costs upfront.
No-Cost Refinance Pros and Cons
A no-cost refinance has both pros and cons worth considering before opting for this type of refi loan. Let’s take a look at some of the most pertinent.
Pros of a No-Cost Refinance
- No Upfront Funds Needed to Refinance Your Loan: A no-cost refi lets you refinance and drop your rate even if you’re short on savings.
- May Be Cheaper for Some Borrowers: Borrowers who do not plan to keep their home long or anticipate refinancing again soon may save money compared to paying their closing costs upfront.
- Mortgage Interest Costs Can Be Tax Deductible: In many cases, the interest paid on your mortgage is tax deductible, meaning a higher rate may offer you more savings on your income taxes. However, be sure to consult a tax professional on how this could affect you personally.
Cons of a No-Cost Refinance
- You’ll End Up With a Higher Interest Rate or Loan Balance: No-cost mortgage refinances are not free; you’ll pay for closing costs eventually, either through a higher interest rate or a larger loan balance.
- Some Lenders May Try to Charge Higher Fees: Some lenders may structure fees differently on no-cost refinances, which is why it’s wise to compare multiple loan estimates to ensure you’re getting the best value.
- Long-Term Costs Could Be Higher: If you plan to keep your mortgage for its full term, your long-term costs will likely be higher over the life of the loan.
Should You Do a No-Closing-Cost Refinance?
A no-closing-cost refinance may make sense for some borrowers, particularly those currently short on cash or who do not plan to keep their home for long. However, these no-cost mortgage refinances are not free, and long-term homeowners may end up paying more over the life of their loan..
To find out how a no-cost refi could help you lower your monthly payments with no money out of pocket, get in touch with a local lender for a personalized loan estimate.
