Considering a No-Cost Refinance… Is It Worth It?

Seeking Advice
1

My current mortgage rate is 6.625%, and I reached out to a lender who quoted me a 6.125% rate for a “no-cost” refinance. They’re saying there’s no breakeven period—just instant savings starting day 1, and I’ll have the option to refinance again in 6 months if rates drop.

I’ve reviewed the loan estimate, and it looks like I’d get my escrow balance back from the current loan when it’s paid off, making it a wash. It almost sounds too good to be true. Is there anything I should be cautious about, or am I missing something? Appreciate any insights!

[Album] imgur.com
2

It looks like there’s $7k in closing costs, maybe rolled into the loan? Or is that your current escrow balance?

3

Spencer said:
It looks like there’s $7k in closing costs, maybe rolled into the loan? Or is that your current escrow balance?

That $7k appears to be taxes/insurance paid out of pocket, not rolled in.

4

Spencer said:
It looks like there’s $7k in closing costs, maybe rolled into the loan? Or is that your current escrow balance?

It should transfer over from your existing escrow balance, I think.

5

@Tavi
That’s what I was told, too. We should get back what’s in our current escrow when the original loan is paid off.

6

Ren said:
@Tavi
That’s what I was told, too. We should get back what’s in our current escrow when the original loan is paid off.

I heard the same. Is this with Chase by any chance?

7

Tavi said:

Ren said:
@Tavi
That’s what I was told, too. We should get back what’s in our current escrow when the original loan is paid off.

I heard the same. Is this with Chase by any chance?

Nope, it’s with a smaller company I found online.

8

It checks out. I’ve been doing these types of refis for clients since rates started trending down.

9

“No cost” is a bit of a marketing tactic. They often increase the rate slightly to cover the costs indirectly. If you ask about paying standard fees, you may see a rate drop. Just weigh the options and see what works best.

10

@Charlie
“No out-of-pocket cost” might be more accurate.

11

Is the rate locked? What type of loan program is this?

12

Sounds like a straightforward no-cost refi. Remember, the escrow balance typically evens out, so you’re not really spending more or saving less on taxes or insurance just because you’re refinancing.

13

Kip said:
Sounds like a straightforward no-cost refi. Remember, the escrow balance typically evens out, so you’re not really spending more or saving less on taxes or insurance just because you’re refinancing.

That’s actually not entirely true. It doesn’t net to exact zero.

14

@Blakeley
It’s your money for taxes and insurance, so why wouldn’t it net to zero? The mortgage company can’t just keep your escrow if you refinance.

15

@Blakeley
Refinancing doesn’t impact what you ultimately owe for taxes or insurance. You pay it either way, but lenders don’t keep extra—it’s a wash.

16

Kip said:
@Blakeley
Refinancing doesn’t impact what you ultimately owe for taxes or insurance. You pay it either way, but lenders don’t keep extra—it’s a wash.

Sure, but setting up a new escrow account isn’t an exact match to the old one. Differences can happen, sometimes due to new tax/insurance amounts.

17

@Blakeley
Right, there can be slight mismatches at closing, but overall, what you owe for taxes/insurance doesn’t change, so it balances out over time.

18

Kip said:
@Blakeley
Right, there can be slight mismatches at closing, but overall, what you owe for taxes/insurance doesn’t change, so it balances out over time.

I agree on the long term. Just pointing out it may not line up exactly if you’re expecting a direct offset at closing.