July 21st, 2017 4:30 AM by Jackie A. Graves, President
mortgage isn't free -- there are fees associated with getting the loan. Those
closing costs usually total thousands of dollars. Besides writing a check to
pay those fees at the closing table, there's another way to pay them when you
refinance your mortgage: by adding them to the loan amount. The result is
called a no-closing-cost refinance. Many lenders offer them.
However, you'll probably have to
accept a higher interest rate over the life of the loan.
"There's two ways people
achieve no-closing-cost mortgages," says Bob Walters, president
and chief operating officer at mortgage lender Quicken Loans. "The
mortgage company will flat-out waive them, which doesn't happen that often. Or,
they will present the rate (with) closing costs and if you don't want to pay,
you'll take a slightly higher rate."
For example, you may be offered a
mortgage at a rate of 3.75 percent and pay closing costs. Or, you can take a
no-closing-costs mortgage at a higher 4.125 percent rate.
Closing costs include services
such as the loan origination, appraisal and title search fees and title
insurance premiums. These costs vary from state to state, but on average the
costs have been rising.
to Bankrate's 2017 Closing Costs Survey, the
origination and third-party fees on a $200,000 mortgage cost an average of
mortgages are attractive to borrowers who don't have the cash to pay fees
upfront. Waiving the closing costs may be the ticket to getting a mortgage for
a new home or a refinance.
you don't plan to stay in your home for more than five years, a no-closing-cost
mortgage also makes sense. With a traditional mortgage, it could take more than
five years to recoup the closing costs.
slightly higher mortgage rate associated with a
no-closing-cost mortgage is still likely to be less expensive over five years
than what you would pay upfront in closing costs.
have to look at the break-even," says Cameron Findlay, executive vice
president of capital markets at Paramount Equity Mortgage.
for example, you had a loan for a while at 6.5 percent and are only looking at
being in the house for another four years. Then, you are probably a good
candidate. You don't want to put money down if you are going to be there for
a slightly higher interest rate to forgo closing costs may also make sense if
you need the cash to do renovations on your home.
you plan to stay in your home more than five years? If so, a no-closing-cost
loan likely will end up costing you more than a loan with closing costs. That's
true whether you're taking out a mortgage for a new purchase or refinancing an
you'll break even on your closing costs in a few years. Going with a
no-closing-cost loan saddles you with a higher interest rate over the rest of
the home loan. That could end up costing you a lot more than the upfront fees
if you keep the mortgage for a long time.
the hypothetical example of two choices for a $150,000 loan. One has a rate of
3.75 percent with $3,500 in closing costs; the other has a rate of 4.25
percent, with no closing costs.
with the higher-rate, no-closing-cost option runs $43.24 a month more, or
$15,567 more over 30 years. In this scenario, it takes six years and nine
months to break even and recoup the closing costs via the lower monthly house
not something that every lender will offer, but it doesn't hurt to ask about
that option," says Frank Nothaft, the chief economist at CoreLogic, a firm
that analyzes real estate and other financial data. "It's up to consumers
to decide if the trade-off makes sense."
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