A "no-closing-cost refinance" is not free. The lender covers settlement expenses by either adding them to your loan balance or charging a higher interest rate with lender credits.
1. Comparing Refinance Settlement Options
- Option A: Paying Cash at Settlement: Secures the lowest possible interest rate (e.g., 6.50% APR) by paying ~$4,000 in closing costs upfront.
- Option B: Rolling Fees into the Balance: Loan balance increases from $400,000 to $404,000 at 6.50% APR. Avoids upfront cash but increases total interest paid over 30 years.
- Option C: Negative Points (Lender Credit): Lender covers $4,000 in closing fees in exchange for a 6.875% note rate (+$96/mo payment). Optimal if you plan to move within 3 years.