No Cost Refinance Mortgages
When it comes to refinancing for a mortgage most people get frustrated that they have to pay up front closing costs. With a no cost refinance mortgage you can avoid paying these costs so you will have more money in your pocket after the refinance.
Of course when you refinance you should really look at the overall fees and real cost of the loan over its lifetime. After qualifying for a no cost mortgage the decision with regards to refinancing will be a lot more simplified. The is basically because there is no need to look a fee costs but only look at the interest rate that is charged. For the first time property buyer these no cost products are harder to find. You may find a low cost mortgage but these packages are really targeted for the existing borrower who has a need to refinance. There are many lenders prepared to offer a no closing ocst refinance loan so of course shop around for the best deal.
It is especially important to get a low or no fee refinance loan if it is your plan to get another one in the future. Or maybe your have plans not to live in your current home for the lifetime of the loan period.
But be aware that a no-cost loan or no-cost mortgage isn’t necessarily cheaper. The borrow has to make money somewhere so they compensate for the lack of up front fee by increasing the mortgage interest rate on the product. Typically lenders charge the borrower a rate of around 0.25 – 0.5 percent higher for their own costs as well as any 3rd party fees that are not paid straight away. Remember that a mortgage broker or lender does not give any money away for free.
There are three different types of no cost mortgage currently available:
- No points but the lender fees and 3rd party fee have to be paid
- No lending fee at all, however the borrower still pays the 3rd party fees
- No money to pay up front and costs and fees are added to the loan’s interest rate
No cost mortgages either can be purchase loans or refinance loans, but are typical on refinances. A completely 100% no cost mortgage would in fact have the same lending interest rate as other regular loans and no payment that would go to the lender or 3rd party. However, these loans are understandably virtually impossible to find.
Is A No-Cost Refinancing Mortgage Right For Everyone?
The most appropriate person this finance type is ideally suited for is someone who plans to refinance or sell their property in a few years time. If interest rates are falling at a steady rate then consider moving to a no cost package as it wont cost you as much as you thought. But for those intent on staying in their homes and don’t plan to move at all and hence will not require refinance then you’ll want to avoid high interest rate mortgages so this deal wont be for you.
For people not moving from their homes for a period of more than 5 years and have no plans to refinance its best to save up the money so that potential closing fees and costs are covered. You have the luxury of concentrating on choosing a better interest rate – the 0.5% difference between the two packages will really add up in time. In fact on a $100,000 mortgage loan that would be paid back over 30 years you would actually pay back an additional $6000 in interest. We those sorts of charges you would be quite happy to pay a small fee or point in order to qualify for a lower interest rate. This is a point to note that looking at a loan over its total lifetime is financially very important.