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What is a No-Closing Cost Refinance?

February 28th, 2018 7:29 AM by Jackie A. Graves, President

Why Choose a No-Closing Cost Refinance?

The lure of refinancing right now is powerful with interest rates hovering near historic lows. But there is a potential downside to refinancing: The cost, as closing costs on a refinance typically run about $4,000. The good news: You can score a no-closing cost refinance.

With a no-closing cost refinance, you won’t have to pay thousands in upfront closing costs for things such as appraisal, underwriting and processing fees — the mortgage company will waive them.

Sounds great, right? Well, there’s a catch: Just because there are no upfront costs associated with the refinance doesn’t mean it won’t cost you.

Extra Costs of a No-Closing Cost Refinance

Sometimes, the mortgage company will charge you a higher interest rate if you waive the closing costs. So, you might get a 3.5 percent interest rate if you pay closing costs, but a 3.9 percent rate if you don’t. Other times, the mortgage company will simply add all of the closing costs, tax and insurance escrows onto your total mortgage balance, giving you a bigger total mortgage bill.

If you plan to stay in the home long term, it is usually a good idea to go ahead and pay the closing costs and take the lower interest rate or lower total loan balance. The reason: Over the long term, you’re likely to pay more in interest than you would have in closing costs.

When a No-Closing Cost Refinance Makes Sense

The no-closing cost refi can make sense for some people — in general, those who don’t plan to stay in their homes for more than five years or who will probably refinance again soon. In this instance, the slightly higher monthly interest payments they will pay usually won’t end up exceeding the amount they would have paid in closing costs, assuming they sell the house (or refinance) within about five years.

Obviously, each buyer will need to do his or her own math on this by determining how long they want to stay in the home and what the higher mortgage interest payments would be over that period vs. what the total closing costs would be.

A no-closing cost refinance can also make sense for people who need to do renovations on their home but don’t have the cash to do them. You may get a better deal by taking the slightly higher interest rate (or adding on to your loan balance, which would also mean you have higher interest payments each month) on the refinance loan than you would on taking out a home equity loan. (This, obviously, depends on interest rates for both loans).

How to Find a No-Closing Cost Refinance

If you want to get a no-closing cost refinance, you can compare options on Zillow. Make sure to filter your quote results to only show No points and No fees mortgage quotes. Even if you don’t see a no-closing cost option, it is worth calling the lender to see if they will offer you one.

To view the original article click here     Apply to Buy a Home     Apply to Refinance

Posted by Jackie A. Graves, President on February 28th, 2018 7:29 AM

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