Learning your loans can be an arduous process, but for homeowners in search of a wallet-friendly loan, doing your homework can offer big payback. Here, we will review no cost and low cost refinancing.
People look for no-cost mortgage refinance loans if they want to avoid paying any up-front costs. Getting low or no fees on a refinance loan is particularly important if you plan to get another loan in the future, or if you don’t plan to live in your home for the lifetime of the loan. This means that when you refinance, you should always look at the true cost of the loan over its life, including fees.
When you qualify for a no-cost mortgage refinance loan, this makes the decision about refinancing much simpler, since you can look only at rate and APR and not be concerned with fees. Although new home purchasers can also find no- or low-cost mortgages, these products are more common in the refinance market. There are lenders who offer no closing cost refinance loans, so be sure to shop around for the best refinance loan you can find.
Unfortunately, a no-cost mortgage or a no-cost refinance isn’t always cheaper. Lenders often raise the interest rate on the loan, to off-set the lack of fees. On many ‘no cost’ loans, lenders will charge a rate .25 to .5 percent higher to cover the their costs and any third-party fees you aren’t paying immediately. Lenders do not give anything away for free.
Three Types of No Cost Mortgages:
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
No-cost mortgages can be either refinance loans or purchase loans, but are typically found on refinances.
A true no-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.