Can refinancing really be free and without cost?

No. ...Some lenders will lead you to believe that you can, but as noted elsewhere on this website, there are many direct costs that go into originating a mortgage (appraisal, credit report, title costs, govt. fees...).

The cost of a refinance doesn't have to be paid in cash nor added to your mortgage balance. Lenders will absorb and pay these fees, BUT, in exchange for a higher interest rate. That's where the cost comes in.

A higher interest rate = a higher value for a given loan. A $200,000 loan at 6.0% interest might be worth just $200,000, but at 6.25% it could have a value of $202,000. The extra value in the loan the lender can use to pay the closing costs on your behalf. You in turn repay the costs a little bit each month as you make your payments over the life of the loan.

Are you thinking ahead yet? So what if you expect the life of your loan to only be 12 months because you plan to move or refinance before then? Is a no cost refinance a good deal? Probably so, because you won't be paying your slightly higher interest rate for very many months. In general, i fyou think that you'll have the mortgage paid off by some means or another within 36 months, a no cost refinance is a good economic choice.

So should you pay a higher rate in exchange for a no cost refinance?
To me the answer depends on how lon gyou expect to have the new mortgage.
Let's look at some math:

$200,000 mortgage amount example
    $1,800 cost to refinance

6.250% interest rate with closing costs above
6.625% no cost interest rate

Step 1: Calculate the difference in payment

$1,234.43 monthly payment at 6.25% with costs
$1,280.62 monthly payment at 6.625% with no costs
     $49.19 difference in payment

Step 2: Divide the cost by the monthy savings

$1,800 cost to refinance
     $49 monthly savings/difference in payment above

   36.59  This is the number of months it would take you to recover the cost of the refinance. If you plan to have the mortgage no
              more than 3 years or so, it's better to go with the no cost option. If not, pay the costs and have a lower payment for the
              life of the mortgage.

If you'd like a custom quote and analysis for your situation, please contact me at steve@southwoodmortgage.com.