No Cost and Low Cost Refinance Loan Tips - How to get a refinance loan with low costs of origination.
Are No Cost Mortgage Refinance Really Available?
People look for no-cost mortgage refinance loans if they want to avoid paying any up-front costs. Getting low or no fees on a refinance loan is particularly important if you plan to get another loan in the future, or if you don’t plan to live in your home for the lifetime of the loan. This means that when you refinance, you should always look at the true cost of the loan over its life, including fees.
When you qualify for a no-cost mortgage refinance loan, this makes the decision about refinancing much simpler, since you can look only at rate and APR and not be concerned with fees. Although new home purchasers can also find no- or low-cost mortgages, these products are more common in the refinance market. There are lenders who offer no closing cost refinance loans, so be sure to shop around for the best refinance loan you can find.
Unfortunately, a no-cost mortgage or a no-cost refinance isn’t always cheaper. Lenders often raise the interest rate on the loan, to off-set the lack of fees. On many 'no cost' loans, lenders will charge a rate .25 to .5 percent higher to cover the their costs and any third-party fees you aren’t paying immediately. Lenders do not give anything away for free.
Three Types of No Cost Mortgages:
- 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 you need to be careful to avoid a higher interest rate in exchange for no closing costs, since the higher interest rate may 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 any potential closing costs and fees on your mortgage and focus on getting the lowest interest rate and APR possible. It may not seem like a big gap, but the difference between 6.00% and 6.25% can really add up. On a $100,000 loan paid over 30 years, that is equal to $6,000 more in interest. In that case, you would gladly pay a point or a small fee to qualify for the lowest rate-it will save you the most money— which is why looking at the total lifetime cost of the loan is important.
If you don’t plan to sell or refinance in three to five years, and your closing costs are less than the additional interest (as they more than likely 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 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 Web sites and at the Better Business Bureau’s Web site.
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 starts to add up.
If your credit isn’t the best and you’re curious about your options, learn about bad credit mortgage refinancing.