Most homeowners are on the lookout for a better deal on their home mortgage. Refinancing to a lower interest rate can potentially save thousands of dollars. But with each refinance, you’ll also need to pay a percentage of your loan value in closing costs. Unless you choose a lender that offers a no closing costs refinance. Sound too good to be true? Yes, in short. Here’s why.

The hidden cost of a no closing cost refinance

Lenders aren’t really giving away refinances for free. Typically, lenders that offer no closing costs refinancing make up for the difference with a higher interest rate. So, while you pay nothing out of pocket today, you’ll pay a little extra every month.

Compare the total loan package

The deal you get from a no closing costs lender may or may not be better than a deal you could get from a more traditional refinance. Compare the full overall cost of two loan options. If paying closing costs leads to a much lower interest rate, you could wind up way ahead over the long haul.

What if I don’t have cash to pay upfront?

A big appeal to a no closing costs loan is not having to come up with cash immediately. Fortunately, you can do this with a traditional refinance, too. In most cases, lenders will allow borrowers to roll their closing costs into their new mortgage.

When it comes time to refinance, get quotes from multiple lenders so that you can compare the real numbers. Maybe the no closing costs loan works out to be the best offer for your situation. Maybe not.

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