No Closing Cost Mortgage: How It Works and When It Pays Off

A no closing cost mortgage is not free. You skip paying lender and title fees out of pocket, and you pay for them another way: a slightly higher interest rate (a lender credit) or, on a refinance, a larger loan balance. It usually makes sense if you expect to sell or refinance within about five years.

$0out of pocket for lender & title fees

2 wayshigher rate or larger balance

Break-eventhe number that decides it

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What Is a No Closing Cost Mortgage?

Closing costs are the lender, appraisal, title and recording fees charged to finalize a loan, often 2% to 5% of the loan amount. With a no closing cost mortgage, those fees are still charged, but you don't bring the money to closing. The lender covers them in exchange for a higher rate, or the fees are added to what you borrow.

How It Works: 2 Ways to Cover Your Closing Costs

Lender credit (higher rate). You accept a rate a little above the lowest available, and the lender pays you a credit at closing that covers your costs. The trade is a higher monthly payment for as long as you keep the loan.
Roll the costs into the loan (refinance only). The fees are added to your new loan balance. Your rate stays the same, but you borrow more and pay interest on those fees. This requires enough equity, and it is not available on a purchase.

Buying a home? A seller credit can also pay your closing costs. Limits depend on the loan: generally 3% to 9% of the price on conventional loans (based on your down payment), 6% on FHA and USDA, and 4% in concessions on VA.

No Closing Cost vs. Paying Closing Costs: An Example

	Pay costs upfront	Lender credit	Roll into loan (refi)
Cash for closing costs	$6,000	$0	$0
Loan amount	$400,000	$400,000	$406,000
Interest rate	6.250%	6.625%	6.250%
Principal & interest	$2,463/mo	$2,561/mo	$2,500/mo
Cost of skipping fees	—	+$98/mo	+$37/mo and $6,000 more owed
Break-even	—	About 61 months (5 years)	Costs are repaid over the loan

In this example, if you keep the loan less than about five years, the lender credit costs you less than paying $6,000 upfront. Keep it longer, and paying the costs wins.

Hypothetical example for illustration only, not a rate quote or an offer to lend. Assumes a 30-year fixed loan and principal and interest only (taxes, insurance and mortgage insurance not included). Actual rates, APR, fees and lender credits vary by lender, loan program, credit, property and market conditions. Annual percentage rates are not shown because they depend on the actual fees of a specific loan.

Is a No Closing Cost Mortgage Right for You?

It often makes sense if you:

Expect to sell, move or refinance within about five years
Want to keep cash for the down payment, reserves or repairs
Are refinancing now and expect to refinance again if rates fall

Paying the costs usually wins if you:

Plan to keep the loan well past the break-even point
Have the cash and want the lowest possible payment

Why Comparing Lenders Matters

Every lender prices credits differently. The same rate increase can earn a $3,000 credit with one lender and $6,000 with another, which is the difference between covering part of your costs and covering all of them. Because we shop your scenario across 30+ lenders with one application and one credit pull, you can see the no-cost option and the pay-the-costs option side by side before you choose.

What a No Closing Cost Loan Doesn't Cover

Your down payment. A lender credit can't be used toward it.
Prepaids and escrow. Property tax and insurance deposits and prepaid interest are separate. Some loans let a lender credit cover them, and some don't.
Cash back. A credit can't exceed your actual costs or be paid to you as cash.

No Closing Cost Mortgage Questions

Is a no closing cost mortgage really free?

No. The closing costs are still paid, just not out of your pocket at closing. You pay them through a higher interest rate or, on a refinance, by adding them to your loan balance.

How much higher is the rate on a no closing cost mortgage?

It depends on your loan amount, your closing costs and the lender's pricing that day. Larger loans need a smaller rate increase to cover the same fees. Comparing several lenders is the best way to find the smallest increase.

Can I get a no closing cost mortgage when buying a home?

Yes. On a purchase, a lender credit or a seller credit can cover closing costs. Rolling the costs into the loan is generally only possible on a refinance.

Is a no closing cost refinance a good idea?

It can be, especially if rates may fall again. With no upfront costs, there is little to lose by refinancing again later. If you plan to keep the loan for many years, paying the costs and taking the lower rate usually costs less.

Does a no closing cost mortgage affect my APR?

Yes. APR reflects both the rate and certain fees. A loan with a higher rate and a lender credit and a loan with a lower rate and paid fees can end up with similar APRs, so compare the monthly payment, the cash needed at closing and how long you plan to keep the loan.

See both options with your numbers. Compare a no closing cost rate and a lower rate with paid costs across 30+ lenders, with one application and one credit pull.

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Mortgage products are originated by PBT Bancorp, NMLS #257781. Dan Frio | NMLS #246527 | PBT Bancorp | NMLS #257781. Not a commitment to lend. Programs are available only where each lender's guidelines allow, and all loans are subject to credit approval and underwriting.