Mortgage refinancing offers an effective means of modifying the terms of your home loan and possibly receiving a lower rate and payment. But refinancing a mortgage is not without costs, and your lender will charge closing costs and perhaps a prepayment penalty. Closing costs, also called settlement fees, average about 2 percent to 6 percent of the loan balance. Inadequate funds can prevent a refinancing. But if short on cash, you can refinance without spending money out-of-pocket.
Read your old mortgage documents carefully. If your current mortgage loan has a prepayment penalty, refinancing your mortgage may require paying a fee. Prepayment penalties do expire after a certain amount of time. Wait until your prepayment penalty expires, and then refinance to avoid a fee.
Ask your mortgage lender to pay your closing costs. If you do not have cash to pay for a refinance, negotiate with your mortgage lender and ask the lender to cover this cost. Lenders may agree to cover the closing costs in exchange for charging a higher interest rate on the mortgage refinance loan.
Include the costs within your balance. If your lender will not pay your closing fees, discuss rolling the closing or settlement fees into your new mortgage balance to alleviate any out-of-pocket costs. Wrapping fees into the loan balance will increase the mortgage and house payment, but since payments are spread out over 30 years, house payment increases are typically minimal.