If you’re considering one of those refinance no closing costs offers for your next home loan there are several things you need to know before paying too much for mortgage refinancing. What most brokers won’t tell you about these no fee refinance offers is what’s going to wind up costing you thousand of dollars from the unnecessary markup of your lender’s best refinance rates. Here are several tips before you refi to help you avoid paying too much for your next home loan.
Refinance No Closing Costs Is a Bad Myth
There are no free lunches (unless your friend is buying) and the same is true when it comes to refinance no closing cost home loans. Every mortgage has origination fees and closing costs that have to get paid one way or another, either by you or the lender. If you take one of those no fee refinance offers your lender is paying the loan origination fee and closing costs for you. Before you jump at the chance to save three grand at closing consider why your lender would do this?
No Fee Refinance Misconceptions
Lenders are willing to pay for refinance no closing costs loans because you’re giving up their best refinance rates in exchange for a higher mortgage rate. Sure, your broker will tell you, it’s only half a percent; but what does this unnecessary markup of the mortgage interest rate do to your payments? Keep in mind we’re talking about a 15 or 30-year home loan here, not a car loan that you’ll pay off in five years.
Suppose for example you’re considering a refinance no closing costs offer for $300,000. Your broker quotes you 5.0% if you pay the loan origination fee and closing costs yourself; however, if you take the no fee refinance this mortgage rate goes up to 5.5%. What does this markup of your best refinance rate do to your monthly payments?
At 5.5% your payments on this thirty-year, fixed-rate home loan will be $1,704 per month. If you pay the broker origination fee yourself and get the refinance mortgage loan at 5.0% your payment will be $1,610 a month. That’s a difference of $94 a month, which is $1,128 a year! Remember this isn’t a car loan; it’s the mortgage securing the home your family is living in.
No Closing Cost Refinancing Mistakes
Closing costs average between three and five thousand dollars depending on how good of a deal you’re getting on your mortgage refi. Most homeowners don’t know that these fees vary from one lender to the next and are negotiable. By accepting the no fee refinance offer in this example after five years you’ll have paid $5,630 for just over three thousand dollars worth of mortgage fees. After ten years that figure balloons to $11,280!
The truth about no fee mortgage refinancing is that you can pay your closing costs now, or pay a lot more later on.
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You can learn more about getting the best refinance rates without paying unnecessary markup or fees by checking out my free Underground Mortgage Refinancing Videos.
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My name is Rob Regehr and I’m a personal finance writer with a chip on my shoulder for banks and brokers that take advantage of my friends and neighbors.
