February 7th, 2009 12:55 PM by Don Groff, Mortgage Broker
By Don Groff
Most people look for no closing cost mortgage refinancing when interest rates are sliding and they want to take advantage of a lower rate without paying any up-front costs or rolling them into the new loan. Although new home purchasers can also find no or low closing cost mortgages you will find they are far more common in the refinance market.
Unfortunately, a no closing cost mortgage is never cheaper over the long term. Instead of paying fees up front or rolling them into the new loan the interest rate is typically .5 to .75 percent higher to cover the lender's costs and any third-party fees the lenders promises you aren't paying. The lender isn't giving anything away for free. This does not mean that a no closing cost loan is not right for you or your situation it depends on a many things.
No cost mortgages come in three flavors:
1. No points, but you pay lender fees and third-party fees
2. Zero lender fees, but you pay third-party fees
3. No cash up-front, but all the fees and costs are bundled into the loan's interest rate.
A true no closing cost mortgage would have the same interest rate as other loans and no payments to the lender or third parties. Understandably, these loans are nearly impossible to find.
Is No Closing Cost Mortgage Refinancing Right for Me?
This type of mortgage is best for people who plan to sell or refinance in a few years. If interest rates are steadily falling they can allow you to move from no cost refinance to no cost refinance without spending a dime on closing costs. If you want to stay in your home and never refinance again, then the higher interest rate will cost you more over the life of the loan.
For people who plan to stay in their homes for more than five years and don't plan to refinance again, the best bet is either pay up front or roll in the closing costs and get a lower interest rate. It doesn't seem like a lot, but the difference between 5% and 5.5% can really add up. On a $200,000 loan paid over 30 years that amounts to over $22,000 more in interest.
Where Can I Get a No-Cost Mortgage?
My company, 360 Lending Group, offers these types of loans as well as other more common types and will also take the time to educate you in all aspects of the loan process. This includes giving you all options so that you can make an educated decision on what loan product best suits your individual needs. Everybody is different and no one loan type is an exact fit for everybody.
No closing cost mortgage refinancing is a popular way to take advantage of falling interest rates. Just be sure to refinance to a lower rate and pay the closing costs before that additional interest really starts to add up.Don Groff has over 8 years of experience in the mortgage lending and real estate fields. His key areas of expertise are in residential mortgage lending and loan structuring to best suit his client’s needs and objectives.