No fee mortgage refinancing is a favorite sales pitch for many brokers. What could be better than having the lender paying your closing costs and loan origination fee for you? No cash out of your pocket and possibly the best refinance rates available…is it all too good to be true? According to Dan Green at the Daily Mortgage Reports lender paid closing costs is the way to mortgage refinancing bliss.
Mortgage markets have improved through 5 of the last 6 weeks, dropping conforming and FHA mortgage rates to their lowest levels of the year, and re-fanning the flames of last year’s Refi Boom. But refinancing your mortgage is about more than just the rate. It’s about the costs, too. Quickly, high costs can negate the benefits of a refi to lower rate.
He goes on to say:
So, a zero-cost mortgage is exactly what it sounds like — a mortgage for which you pay nothing. Loan sizes don’t increase and nothing is “rolled in” to your balance. The downside to a zero-cost mortgage is that your monthly payment will be higher, but usually it’s by a negligible amount relative to the sum of closing costs waived at the time of closing.
So are these no cost mortgage loans a good deal? Are there really any free lunches when it comes to getting the best refinance rates for your mortgage refi? According to Dan’s article, if you’re refinancing your home for $250,000, a no fee home loan will add .5% to your best refinance rate.
What does that .5% do to your monthly payment? In Dan’s example you qualified for a 5.0% interest rate but your broker is marking it up to 5.5% to cover your closing costs and loan origination fee. Your monthly payment on a 30-year, fixed rate home loan at 5.5% will be $1,419 per month.
If you had paid the broker fee and closing costs yourself the payment on the same home loan with a 5.0% interest rate would be $1,342. That’s a difference of $942 a year you’re overpaying to have the lender pay your closing costs. Remember this isn’t a car loan, if you keep the mortgage for ten years you’ll pay $9,240 for around $3,000 in closing costs. According to Dan this is a negligible amount; however, to most people ten grand is a lot of money to throw away.
You can learn more about getting the best refinance rates for your mortgage refi without paying unnecessary markup or junk fees by checking out my free Underground Mortgage Refinancing Videos.