Mortgage refinance that has minimal closing costs go by three names. They’re also known as No-Cost Refinance Mortgage Loan, No-Fee Refinancing and No-Cost mortgage refinance. To close a traditional refinance mortgage, borrowers have to pay for things. The title search, title insurance, courier fees, flood certification fees, recording fees, attorney’s fees and etc should be settled first. On a no-cost mortgage refinance, the lender covers the bill for all those expenses without increasing the loan balance. This scenario sounds enticing, but it still pays to know more about this deal.
Know that there will still be some costs that the lender will not cover. Most no cost refinance lenders won’t pay the amounts associated with escrow fees, prepayment penalties on the old mortgage, prepaid homeowners’ insurance, or prepaid interest on the new one.
A no-cost refinance mortgage might seem to offer free money to borrowers, but no. When you compute the numbers, they start to add up. Then you’ll realize that borrowers are charged a higher interest rate on the no-cost loan. Note that the increased finance charges are the amount enough to compensate the lender for paying the closing costs.
How to know if a no-cost refinance is right for you?
The benefit of no-cost refinance shows when you don’t pay off or refinance the loan within a few years. For you to make sure how soon you shouldn’t refinance your no-cost refinance loan, compare the payments on a traditional refinance with those of a no-fee refinance. When you pay off the loan before you hit the breakeven point, that’s when the no-fee mortgage saves you money. It might cost you more money if you don’t follow a clear path in refinancing a no-cost refinance.
To help you have a better evaluation, consider the added tax benefits of a higher interest rate. You should also think that a no-fee refinances can be preferable if you invest the cash elsewhere.
Talk to your trusted financial advisor before taking significant leaps. Make sure to consider all sides before availing no-cost refinance mortgage loan or no-fee refinancing.