“No cost” refinance mortgages are a good option for those planning to keep their home loan for less than two years. A “no cost” mortgage allows you to focus on finding the lowest interest rate, not worrying about fees.
What Is A “No Cost” Mortgage Loan?
A “no cost” mortgage is where the lender pays all the closing costs. The borrower pays nothing upfront – no points, no third party fees, no closing costs. These costs aren’t wrapped into the loan’s principal either. For this benefit, you will usually be charged a point or more.
“Zero fees” or “zero points” are not a “no cost” mortgage. With these types of mortgages you can still be responsible for third party fees.
When to Refinance With A “No Cost” Mortgage?
You can save money on refinancing when you plan to keep the loan for two or less years. By not having to pay any out of pocket expense, you don’t lose on selling or refinancing again.
The drawback is that if you keep the loan for longer than two years, this type of mortgage will be more expensive than if you picked a traditional home loan. Paying closing costs and points lowers your interest rates, giving you a savings each month. The longer you keep your loan, the more you save.
You also need to make sure that the mortgage you plan to refinance has higher rates than a “no cost” mortgage. Be aware too that you miss out on the tax deduction for mortgage points prepaid. Your income level will also affect your mortgage interest tax advantage.
Finding Rates for a Mortgage Refinance
Finding “no cost” rates takes a little bit of searching. When you are requesting rates, check the box for “no cost.” When you receive your quote, the APR and interest rate should be the same. Some lenders have varying definitions of “no cost.”
The only reason to choose a “no cost” refinance mortgage is if you plan to pay off the loan in two years. If you want a no cash refinancing loan, there are several lenders who will include the costs in your loan’s principal. This will qualify you for lower rates and increase your savings.
No matter what you choose, compare quotes first to see your savings.
Here are our
Recommended Mortgage Refinance Companies Online.
Carrie Reeder is the owner of ABC Loan
Guide, an informational website about various types of loans.
