August 9th, 2016 5:22 AM by Jackie A. Graves
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.
you'll probably have to accept a higher interest rate over the life of the
2 ways people achieve no-closing-cost mortgages,"
says Bob Walters, chief economist at mortgage lender Quicken Loans based in
Detroit. "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."
example, you may be offered a mortgage at a rate of 3.75% and pay closing
costs. Or, you can take a no-closing-costs mortgage at a higher 4.125 % rate.
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 most recent Closing Costs Survey, the origination and third-party
fees on a $200,000 mortgage cost an average of $1,847 in 2015. That's not
cheap, but it was down $142 from the previous year.
No-closing-cost 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 5 years, a no-closing-cost
mortgage also makes sense. With a traditional mortgage, it could take more than
5 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 5 years than what you would
pay upfront in closing costs.
have to look at the break-even," says Cameron Findlay, chief operating
officer for Roseville, California-based Paramount Equity Mortgage.
for example, you had a loan for a while at 6.5% and are only looking at being
in the house for another 4 years. Then, you are probably a good candidate. You
don't want to put money down if you are going to be there for 4 years."
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 5 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 existing
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 2 choices for a $150,000 loan. One has a rate of
3.75% with $3,500 in closing costs; the other has a rate of 4.25%, with no
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 6 years and 9 months to
break even and recoup the closing costs via the lower monthly house payments.
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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