Jan

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No Closing Cost Mortgages

Filed Under mortgage 

Many brokers offer a no closing cost option in exchange for a slightly higher interest over the life of the loan.

If you currently have a fixed-rate loan and can refinance at “No-Cost,” meaning you can obtain a lower rate with no out-of-pocket fees, it only makes sense that you should . If you can take your 30-year fixed and leave the balance where it is and lower the interest , thus lowering the monthly payment, why in the World would you not do it? And even if you are several years into your current loan, a No Cost Refi may still save you money. If for example, you are starting year 5 of your loan, the can amortize your loan over 25 years instead of 30. Doing it this way, you are not starting all over again. You would be paying off the loan in the same amount of time. A No Cost Refi could you save you thousands of dollars in interest over the life of the loan.

For homeowners refinancing for lower monthly payments, No Closing Cost mortgages may work out better even though No Closing Cost loans are at a higher interest . If a homeowner can save $300 per month by refinancing, even if he intents to sell the house in two years, he would save $7,200 during the two years. Of course he should make certain the new loan does not add to the old loan balance by more than $7,200. Without taking into consideration the time value of money, saving $7,200 over two years only to pay it back in the form of a higher loan balance when he sells the house does not benefit the homeowner.

No Closing Cost Mortgages should not be confused with No Money Down mortgages, which while also being more expensive in the long run, are for buyers who do not want to contribute a lump sum payment toward the price of their new home.

Borrowers elect “no-cost” loans for two reasons. They are either short of cash, or they don’t expect to have the very long. Borrowers in the second group minimize their upfront costs because they expect to pay the high for only a short period.

No Closing Cost Mortgages can help people short on cash obtain a mortgage with no out of pocket expenses. However, borrowers should understand no closing costs mortgages will cost them more in the long run depending upon how long they keep the mortgage. Lenders offset closing costs by charging borrowers a higher interest rate. This higher adds tens of thousands of dollars to a 30 year loan kept the entire 30 Years. Which, when compared to $4000 closing costs estimated on a $100000 Loan should make borrowers think hard about using a No Closing Cost .

It makes sense to look at refinancing 6 months after obtaining a no closing cost loan. If your home now has a decent amount of equity, you may be able to obtain a lower interest due to a positive change in your loan to value ratio.

Many borrowers confuse a “No Cost” loan with a “No Out of pocket Cost” loan. In almost all refinances the closing costs can and are rolled into the new loan amount. This means that the borrower doesn’t have to pay for the closing costs with their own funds. A true “No Cost” loan most or all of the closing costs are waived in exchange for a higher interest .

Usually, the “no-cost” option is beneficial for first time homebuyers who may not have enough saved up to warrant paying the closing costs. It should be made very clear as to what options are available and the differences between a “no-cost” and other loans should be very clear.

Many potential borrowers mistakenly think that lenders who advertise “no cost, no fee” loans are actually waiving the costs and fees. The truth of the matter is that the borrower will still pay for these items in the form of a higher of interest.

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