No Cost Refinance Loan
The idea of what’s called a “no cost refinance loan” seems to be a very enticing. No cost usually means no payment, or no fees, but while this might be true to some extent, it is very important to know what no cost refinance loans really are.
No cost home loan refinance has many names, such as no fee refinances, no cost refinances, and no cost mortgage refinances. But all of these names refer to a mortgage refinance that has very minimal closing costs.
In order to close a normal refinance mortgage, certain things such as title insurance, title search, flood certification fees, courier fees, attorney fees, and recording fees, among others, have to be paid. These fees would normally amount to around a thousand dollars, sometimes even more, depending on the situation. And this could cause a one-time, big-time cost that most people might not be able to afford, or do not want to deal with.
What no cost loan refinance does is to have the lender pay for these expenses. And even if this is the case, it does not translate to an increase in one’s loan balance.
There is a catch, however. No cost refinance often has higher interest rates to compensate for the lender having to pay for the other fees and charges. It is through this higher interest rates that the lender, over time, makes up for paying the closing costs for the borrower. Also, not all costs will be covered by the lender. Certain fees like prepaid homeowners’ insurance, escrow fees, prepayment penalties on an old mortgage, and the like, won’t be covered.
So why would anyone get a no closing cost refinance loan?
No cost refinance is ideal for people who would like to pay off or refinance the loan in a few short years. This is important because, those who take a no fee refinance, but plan to pay off the loan in a longer period of time, may find that the higher cost of the refinance may add up to more than what the person would have paid upfront in closing costs.
In general, the rule is that people who plan to pay off the loan before the break-even point will save money through the no fee mortgage. People who plan to pay the loan over a longer period will find themselves losing more money.
There are also other things that can be considered when deciding whether or not to get a no fee refinance. A person’s savings income, and the added tax savings because of the higher interest rate, are just a couple of them.
In the end, a no fee refinance is neither good nor bad. Its utility and usefulness is determined mainly by how a person is able to comfortably release his or her money. There are cases wherein no fee refinance would be preferable than other methods, and some cases when it would be detrimental. The key is to do more research, talk to your San Diego mortgage professional, and to understand the mechanics fully, in order to make the best decision.
Other Topics of Interest:
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Popular San Diego Mortgage Loans: Shopping for a home loan used to be like looking in the one-size-fits-all department. For years the standard residential mortgage was the thirty-year fixed loan. But these days there are are so many different options.
Second Mortgages: Second mortgages provide a way for homeowners to access their equity and for home buyers to bridge the equity gap for their down payment.
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