Are you planning on refinancing your mortgage? Have you been hearing of no closing cost refinancing but wondering what it is and whether it’s the best option for you? We wrote this article for you. To provide you with everything you need to know about this mortgage refinancing option and to answer your question of whether it is an option you should pursue.
What is No-Closing-Cost Refinancing?
This is a type of mortgage refinancing option in which the borrower does not pay any processing fees. Basically what this means is your lender pays for all or part of the processing fee. This feature is what makes this refinancing option attractive to borrowers and vendors have not been found wanting in highlighting this.
But the question you should be asking is; is this actually free?
The reality is, NO it is not free. A borrower in this case you ultimately pay for the refinancing option – no closing cost refinancing through a number of clever means the lender has devised. This include raising the interest rate on your loan such that you’re paying far more than you would have in the long term, or spreading their commission to the point where they make enough money to offset the fees associated with the loan.
So basically when you decide to sign-up for a no closing cost refinancing of your mortgage loan, you’re in effect deferring payment of the processing fee now to paying over the life of the loan which in most cases will cost you more.
What charges make up the processing fees?
Understanding the different charges that make up a refinancing processing fee will arm you with the information you need to negotiate for a reduction where appropriate. These charges include the typical lender processing and underwriting fees, the appraisal fee and loan origination points. It may also include third party costs like title fees.
Is a No Cost refinancing the best option for me?
Answering this question largely depends on your unique financial state and what you plan to do with the property and mortgage.
If you are planning on staying for upwards of up to five years in your home then paying the closing costs should be your best bet. Though it’s going to take more money out of your pocket now, but on the longer term, you’ d be saving on repaying a larger principal or battling with an over-sized interest rate. And to compound it all, lenders may also include a repayment penalty option that penalizes you if you try to refinance before a certain timeframe – discouraging you until the recouped their costs.
However, if you’re going to be moving pretty soon or selling the house then no closing cost mortgage refinance may be worth considering. This is because, you may not be able to recoup in refinance savings the upfront fees you’d pay.
Are there pros and cons of choosing a no closing cost refinancing?
Yes. The no closing cost mortgage refinancing has both its advantages and disadvantages
- At least you don’t get to pay anything now
- A no closing fees means shorter break-even point
- Refinancing offers you an opportunity to lower your interest through comparing rates among lenders.
- You’re saddled with a higher monthly payment
- You are likely going to pay more interest over the life of the loan
Keep in mind that no closing cost mortgage refinance is neither inherently good nor bad, you either pay the money now or over time. The benefits accruable to you from using this refinancing method are largely dependent on your personal financial state, the fees, and the interest rate. This is why we recommend conducting due diligence before signing up with any lender.