How to Get a Free Home Loan Refinance and Save Money

Refinancing your mortgage can help you save money each month, get into a better loan product, or tap home equity. But closing costs often hold borrowers back from refinancing. Is it possible to refinance your home loan for free?

In this comprehensive guide, we’ll explain what a free home loan refinance is, when it makes sense, and how to find lenders that offer $0 closing cost refinances

What Is a Free Home Loan Refinance?

A free home loan refinance lets you refinance into a new mortgage without paying closing costs out of pocket. The “free” refers to the lack of upfront closing fees you pay at closing.

On a typical refinance, closing costs often run 2% to 5% of the total loan amount With a $200,000 mortgage, you could pay $4,000 to $10,000 just to refinance into a new loan. These hefty fees stop many borrowers from refinancing, even if they’d benefit from better terms

With a free refinance the lender pays your closing costs or waives them. You don’t pay anything at closing. This makes refinancing affordable for more homeowners.

Below are two common types of free refinances:

• No-closing cost refinance: The lender covers closing costs by raising your interest rate or adding costs to the loan balance. You pay zero fees at closing.

• $0 down refinance: Also called a cash-out refinance. You take cash from the new loan and use it to cover closing costs.

As you can see, “free” doesn’t necessarily mean the lender pays closing costs out of kindness. There are always tradeoffs, like a higher rate or increased loan amount. But a free refinance can still save money long-term.

When Does a Free Refinance Make Sense?

Free refinances work best when:

• You have little cash: Paying closing costs in cash would leave you financially strained.

• You plan to move soon: Paying points and fees upfront doesn’t make sense if you won’t stay long enough to recoup costs through monthly savings.

• Interest rates drop: Refinancing ASAP locks in more savings compared to closing costs.

• Your credit improves: Refinancing into a better rate quickly can save more money than waiting and paying upfront closing costs later.

• Home values rise: Tapping equity through a cash-out refinance provides cash to pay closing costs.

As an example, say closing costs on your refinance would total $5,000. You expect to lower your monthly payment by $150 per month with the new rate. It would take over 2 years of payments to recoup the $5,000 through savings.

If you might move within 2 years, a free refinance ensures you lock in savings without wasting money on upfront fees before selling.

How Do Lenders Offer Free Refinances?

Lenders use a few strategies to provide free refinancing:

Lender Credits

Also called lender subsidies. The lender simply pays for part or all of the closing costs. This incentive helps lenders win more business when competition is high.

Lender credits come from the lender’s profits. They aren’t “free money” – the lender earns this back through your loan payments over time.

Higher Rates

As mentioned earlier, the lender may offer a higher interest rate in exchange for lower fees. This works well if you plan to move soon since you pay less upfront.

Be cautious, as even small rate bumps cost more long-term. Do the math to ensure monthly savings exceed the higher interest costs.

Roll Costs into Loan Balance

Closing costs get added to the loan balance directly. This increases your principal, so you pay interest on the costs over the loan. But it prevents out-of-pocket expenses now.

This approach works best if you previously had a low loan balance relative to your home value. The increase in principal may be insignificant compared to the savings from lower rates.

Cash-Out Refinance

With a cash-out refinance, you take equity out of your home in cash. You can then use this money to cover closing costs.

Cash-out refinancing makes sense when home values rise significantly. The loan costs get paid by tapping your equity rather than paying out of pocket.

Tips for Finding the Best Free Refinance

Follow these tips to find the best free refinance for your situation:

• Shop around: Compare multiple lender quotes to find the most favorable closing cost options.

• Check rate impacts: Don’t sacrifice too much rate for lower fees if you plan to keep the home long term.

• Calculate the breakeven point: Determine when monthly savings will surpass higher costs from the free refinance.

• Review fine print: See if points or fees get added later in the process to offset lender credits now.

• Mind the loan amount: With rolled costs or cash-out refinances, ensure the new loan amount fits your budget.

• Consider loan term: Will shortening or lengthening the term save more money in the long run?

• Set rate alerts: Monitor rate trends to jump on a free refinance when rates decrease.

• Review home equity: If your LTV improves, you may qualify for better rates on a cash-out refinance.

• Check for lender promotions: Ongoing lender promotions can provide seasonal incentives.

Free Refinance Options from Top Lenders

Many national lenders advertise free refinancing options. Here are a few top lenders to consider:

• Better Mortgage: Free refinances through lender credits or higher rates.

• LoanDepot: Offers “no closing cost” refinancing.

• Rocket Mortgage: Advertises “no closing cost” home loan refinancing.

• SoFi: Runs frequent promotions for free refinancing.

• Wells Fargo: Features refinancing specials with $0 down and no closing costs.

Look for lenders like these advertising some form of free refinancing. Compare offers from multiple lenders to find the best terms.

When to Avoid a Free Refinance

While free refinances provide obvious savings upfront, they aren’t the optimal choice in every mortgage situation:

• If you plan to keep the home long term, paying points to buy down the rate saves more over time.

• If you can afford closing costs in cash, you may get better base rates by paying fees upfront.

• If you want to shorten your loan term, closing costs may still make sense to secure a lower monthly payment.

• If you’ve owned the home a while and have substantial equity, a cash-out refinance may not be necessary.

Like any financial product, shop carefully and run the numbers for your situation. Be sure the free refinance provides the best terms overall.

Use a Refinance Calculator

To decide if a free refinance works for you, use a refinance calculator:

• Input your current loan details including the balance, rate, and term.

• Next, estimate new loan details with the free refinance based on lender quotes.

• Look at projected monthly payment savings between the two scenarios.

• Determine when those savings will surpass any higher costs from the free refinance option.

For example, say your current mortgage is $250,000 at 4.5% interest. A lender quotes you 3.85% with a free refinance but rolls $5,000 into the balance.

The calculator will show your breakeven point where monthly savings overcome the higher balance. Review when the breakeven happens relative to your expected tenure in the home.

Try this refinance calculator from Fannie Mae to run the numbers and see if a free refinance works in your situation.

The Bottom Line

Free refinancing enables homeowners to secure better loan terms without burdensome closing costs. While not ideal in every situation, $0 closing cost refinancing provides an affordable option if upfront fees would bust your budget.

Next time rates drop, try negotiating free refinancing with lenders. Just be sure to calculate long-term costs against short-term savings to make the optimal decision. With the right approach, you can painlessly refinance into better terms for your financial situation.