No Cost Refi - If you are a home owner and are considering refinancing you current mortgage you have many different loan programs to select from. One program that has been gaining popularity recently is the no cost refi. The no cost refi program has no closing costs, all the closing costs and third party fees are paid by the lender. A no cost refi has many advantages and disadvantages associated with it.
Most of the large corporate lenders advertise the "No Cost Refi" in a way that appears to save the borrower money. The fact is that over the life of the mortgage the higher interest rate of a No Cost Refi will cost you substantially more money. You are better off paying closing costs out of pocket or rolling them into the loan in return for a lower mortgage interest rate.
While a no cost refi may sound like a dream come true, talk to a mortgage professional about the detailed costs of originating a new loan or refinance. There is no such thing as a free lunch, and sadly, there is no such thing as a free refinance either. How you choose to pay may dramatically impact how much you spend on your mortgage over the long run.
Whether a no-cost refi is the way to go depends on a couple of factors. ... If you're planning on moving fairly soon, the no-cost refi might well make sense.
When you hear the term "NO Cost Refi" or "No upfront fees", ask yourself how are they going to make their money. The answer is in the form of a higher interest rate. You may save a few thousand dollars upfront but you will be paying tens of thousands of dollars in the long run. These loans are great for borrowers without the ability to pay the upfront fees but borrowers who can afford them should be leary about using them.
One way to find out which method is best for you is to find your breakeven point. The breakeven point is the number of months it would take to recoup your closing costs based on your savings in monthly payment. For example if you incur 5,000 in closing costs which result in a $250/month savings, it would take 20 months to break even of the closing costs.
Typically, a no cost refi comes with a higher interest rate.
One of the main factors in determining whether a no cost refi is the "right" way to go is to look into your financial situation and see what your future goals are. A no cost refi is a good idea if you are considering moving in a few years or you know that you will need to refinance in a few years. The reason being is that by obtaining a no cost refi you are going to pay a higher interest rate than you would have by just simply paying for the closing costs or rolling them into your loan. Most of the time the closing costs could have been paid for within a couple of years with a lower rate loan and therefore if you keep the no cost loan more than a couple of years you will be stuck with that higher interest rate for the life of the loan or long after you would have paid for those closing costs. This will cause you to pay much more in interest over the life of the loan. After discussing your goals and needs with your mortgage professional he or she should be able to provide you with their opinion on which type of refinance will be best for you, "no cost" or "with cost".
No Cost Refi - Nowadays, it seems one cannot watch an entire news broadcast on TV without seeing a "No Cost Refinance" advertisements. What is "No Cost Refi" and is it better than mortgage home loans with traditional settlement costs?
Regardless of the type of home loans, there will always be closing costs. Title companies will always charge for their title works and county recorders will always charge recording fees. "No Cost Refi" loans are "no cost" only in the sense that these costs do not come directly out of the borrowers pocket. The costs, however, are paid indirectly with higher interest rates. In most cases, the benefits of "no cost" mortgage loans do not justify the high cost of high interest rates.
No cost refi offers from most lenders do not include taxes or insurance, such as mortgage taxes and any pending or payable property tax or homeowner's insurance bills for the near future.
The majority of no-cost refi offers are actually rather hollow, as they do not include certain substantial, variable costs associated with refinancing a mortgage. One example is title insurance, which is a variable cost billed by a third party insurance company.
There are a few situations where a "no cost" loan is truly a no cost loan. In these cases the costs associated with closing are absorbed through a higher interest rate. The higher interest rate means the lender pays the broker a higher percentage; the broker can then use a portion of that percentage to pay your closing costs in what is called a "broker credit". In these situations there is the benefit of no closing costs; however the down side is that the interest rate and monthly payments are generally higher.
Lenders advertising no cost refi loans are actually misleading borrowers. Many of the costs asscoiated with doing a no cost refi are in small print and borrowers won't find out until they get to the closing table.
No Closing Cost Loans - You will have an interest rate that is slightly higher than the rate available for a mortgage loan where you pay closing costs, points, and fees.
A "No-closing cost" loan might be suitable if you plan on holding the mortgage note for a short time or if the difference in payment and rate between a "no-closing cost" loan and standard fee loan is minimal.
You may actually be able to effectively get a no closing cost loan, by getting the closing costs paid for by the seller, with seller paid concessions. If the seller agrees to pay 3% closing costs, you may get the same loan with a small increase in the loan amount, but no increase in the interest rate, providing the appraisal will allow for the increase in price. If you plan to hold on to the property for any length of time, it would be well worth it to raise the price by a few thousand dollars, instead of paying a higher interest rate.
Keep in mind that "No Closing Costs" is not exactly the same as "No Costs". Depending on the lending banks, some may require the home buyer to pay for appraisal, county recording, mortgage taxes, real estate taxes, pre-paid interests, etc. Always inquire about what specifically are the banks paying on your behalf. A detailed Good Faith Estimate provided by the lending banks can often paint a clearer picture as to what the true costs are.
If you are considering a no closing cost option, ask your loan officer about such topics as mortgage insurance & title fees.
Ask your mortgage professional to show you the mathematical equation for how long it would take you to "break even" with a standard loan program that you are comparing to a no closing cost loan. If you save $50 per month on a no closing cost loan that should have $5,000 worth of closing costs, it would take you over 8 years to "break even" by paying the closing costs up front.
The implication in the advertising of no closing cost loans from some lenders is that the lender is simply “giving away” or not charging for the closing costs. Nothing could be further from the truth. You will pay for these costs in one form or another and an honest, competent mortgage professional such as myself can clear the smoke and mirrors from such advertising.
There is no such thing as a free mortgage. There are people involved with every mortgage transaction. Those people must be paid. If your not paying any closing costs then your paying a higher rate. Often no closing cost loans are contingent on higher rates or the seller gives a credit.
Even when obtaining a no closing cost loan if you are escrowing for your taxes and insurance, you will still either have to bring money to close to set these up or increase your loan amount and roll this money into the loan to set up your tax and insurance escrows. Therefore, in addition to minor items such as recording fees and such that you may still need to pay for you will have to account for money to set up escrow accounts for your property taxes and homeowners insurance. Depending on the time your taxes and insurance are due this can get somewhat high or be very low.
Beware of the lenders that also offer no lender fees or extremely low lender fees. No or low lender fee loans typically have all of the other fees associated with the loan and the upfront savings is very minimal.
No closing cost loans are advertised as a mortgage loan with no cost to you. This is only true for the upfront cost. You will be paying those cost at a much higher interest rate which generally will cost you much more over time than if you would have just taken the lower rate with closing costs.
No Closing Cost Home Equity Line of Credit - When looking for a home equity line of credit you will have many options to choose from. Most notably you will have the option of a no fee home equity line of credit. The lender will pay all fees associated with he closing of your HELOC for an increase in the margin charged over prime.
Often, you will have the choice of no closing costs or to pay these costs. Ask your mortgage professional to do a comparison of the two for you. Closing costs for equity loans are usually quite low and, depending upon how long you will have the loan, the lower interest rate you pay may offset the closing costs.
When choosing your line of credit also be sure to know what your rate will be after the initial teaser rate if there is one. Often times these lines of credits have a a short term teaser rate.
The monthly payment on a HELOC is based upon the outstanding balance, not the credit limit. Advantage - you only pay for it if you use it!
A no closing cost HELOC is always a good idea to have. It costs you no money to take out, and it gives you emergency money for any incidentals for the homme or unforeseen costs that you may have.
Many Equity Lines of Credit, and especially no cost home equity lines of credit, will still have an annual fee. Most of the time the annual fee is waived for the first year and then each anniversary date of when you obtained the loan you will have a annual fee assessed. This fee is usually around $50, give or take a little, but it just depends on the actual lender.
Many no cost HELOCs are also not available to borrowers without platinum level credit scores.