How to Refinance Without Paying Fees

A no cost refinance sounds like every borrowers dream: a home mortgage with no extra fees. If you do not have much money saved to spend upfront when you take out the mortgage, getting rid of all the extra fees can sound like it would save you a lot of money. But is that how it really works?
The problem with a no cost refinance, just as with so many types of refinance that look good at the beginning, is that the lender recoups the money it loses on fees by charging you a higher interest rate. A traditional refinance usually has a lower interest rate than a no cost refinance. Over the long run, the added interest payments can cost you more than simply paying the fees would have. (However, either way you would probably have paid more if you had not refinanced at all.)
Because of this trap, many refinance experts tell their clients to avoid a no cost refinance unless they can pay it off quickly, reducing the financial impact of the higher interest rate. There are also several other good reasons to opt for a no cost refinance despite the interest rate. Perhaps you do not have the money to cover higher closing costs now, but you foresee improved income in the near future and want to take advantage of lower interest rates now. Or perhaps the higher interest rate offers tax advantages that offset the higher monthly payments. You may even find a no cost refinance that comes with an interest rate low enough to be competitive, especially if you foresee that interest rates will rise considerably before you have the cash on hand to do a traditional refinance. In refinancing, as in anything to do with real estate and mortgages, timing and your own particular situation are factors as important as any impersonal math.
Given these pros and cons, is a no cost refinance a good option for you? Weigh your available offers and run them through a mortgage calculator. Realistically determine whether you will be able to pay higher monthly payments or add a little money to each lower monthly payment to shorten the term of your refinanced mortgage. Think about whether you could obtain the money for the refinancing fees in a way that would cost you less. If, after all your calculations, a no cost refinance is the best option for you, then refinance with a full understanding of what you are agreeing to. Used the right way, a no cost refinance can be an excellent financial choice.