Tuesday, February 10, 2009

No Cost Mortgage Refinancing

Most people look for no cost mortgage refinancing when interest rates are sliding and they want to take advantage of a lower rate without paying any up-front costs. Although new home purchasers can also find no or low-cost mortgages, they’re for more common in the refinance market.

Unfortunately, a no cost mortgage isn’t really cheaper over the long term. Instead of paying fees out-of-pocket, closing costs, or other costs at the time of the loan, the interest rate is .25 to .5 percent higher to cover the lender’s costs and any third-party fees the lenders promises you aren’t paying. The lender isn’t giving anything away for free.

No cost mortgages come in three flavors:

No points, but you pay lender fees and third-party fees

Zero lender fees, but you pay third-party fees

No cash up-front, but all the fees and costs are bundled into the loan’s interest rate.

A true no-cost mortgage would have the same interest rate as other loans and no payments to the lender or third parties. Understandably, these loans are nearly impossible to find.

Is No Cost Mortgage Refinancing Right for Me?

This type of mortgage is best for people who plan to sell or refinance in a few years. If interest rates are steadily falling, then you can move from no cost refinance to no cost refinance without spending a dime on closing costs. If you want to stay in your home and never refinance again, then the higher interest rate will cost you more over the life of the loan.
For people who plan to stay in their homes for more than five years and don’t plan to refinance again, the best bet is to save up the money to cover the closing costs and fees on your mortgage and get a lower interest rate. It doesn’t seem like a lot, but the difference between 6.25% and 6.5% can really add up. On a $100,000 loan paid over 30 years, that totals $6,000 more in interest.

If you don’t plan to sell or refinance in three-to-five years and your closing costs are less than the additional interest, more than likely they will be, then it’s worth it to pay the closing costs up front. Even factoring in your tax deduction, paying the closing costs would still save you money over the long-term. The higher your mortgage balance, the more that extra quarter point will cost you.

Where Can I Get a No-Cost Mortgage?

You can find these types of mortgages at most lenders. Bills.com can connect you to several no cost mortgage lenders. You can also find them at most of the major banks and mortgage lenders. To avoid being overcharged for your mortgage, compare their interest rates and then research each potential mortgage lender’s reviews and customer comments on consumer websites and at the Better Business Bureau’s website.

No cost mortgage refinancing is a popular way to take advantage of falling interest rates. Just be sure to refinance to a lower rate and pay the closing costs before that additional interest really starts to add up.

By: Justin narin

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