In the article you will find the basics of “No-Cost” Mortgage Refinancing. Often, when people refinance their mortgages, it is because their finances are tight. There is not much room between what they owe and what they earn, so refinancing helps them to lower their mortgage payments and in some instances, pay off their other debt. But because things are so stretched to the limit, despite the fact that they need help, they do not have the necessary cash on hand to benefit from a refinancing.
There are closing costs to any refinance so many lenders, even FHA lenders, offer “no-cost” mortgage refinancing. What that means is the closing costs are obtained from higher interest payments, as opposed to a cash outlay at the time of closing. In fact, many lenders use “no-cost” mortgage refinancing as a promotional tool to find new customers.
Indeed, the reality is that “no-cost” does not literally mean that it will cost nothing to refinance a mortgage. Lenders are not charities, and do not offer loans for free. In truth, if you take the real cost of the mortgage over the duration of the contract, you will undoubtedly pay more than if you had paid those fees outright in the beginning. But, as we stated in the beginning, most people who refinance do not have the means to pay for everything involved in closing the deal. A “true” no-cost mortgage refinancing would have zero costs attached to the loan, but who is going to really offer that deal to someone?
To give you an idea of some of the fees that lenders are advertising as part of their no-cost mortgages, we have compiled a short list which may vary between lenders and financial institutes.
- cost of appraisal
- cost of title search and title insurance
- courier charges
- statement and telephone charges
- closing fees such as lawyers’ costs
Other fees such as per diem interest, escrow, government fees, and outstanding taxes or insurance will not be included.
Basically, with no-cost mortgage refinancing, you are agreeing to pay your costs through your loan payments at higher interest rates, so really you should expect to refinance again in the near future. Ultimately, you do not want to keep the same contract for the rest of your lifetime because you will have paid a very high price for that no-cost privilege. But, if you sell the home, or you refinance later at a better rate, then the costs are not as high.