No cost mortgage refinance offers seem like a good deal especially with a mortgage broker salivating over lender paid compensation telling you how great they are. You’ll only pay a little extra every month; you won’t notice and pay nothing to the lender at closing Are these no cost mortgage refinance offers really a good deal? Here’s some bad advice from HSH.com to illustrate my point with a recent article entitled “Should I Refinance My Mortgage?”
This particular nugget of bad mortgage advice is written by Tim Manni at hsh.com:
A zero-cost refinance is exactly what it sounds like–it is a refinance for which you pay zero closing costs. But do not confuse “zero cost” with “free.” There is a cost. In exchange for having your closing costs waived in full, your lender will ask you to willingly accept a mortgage rate that is slightly higher than today’s “going rate.”
So what does this “slight” markup of your mortgage rate do to your monthly payment amount? Don’t kid yourself; there’s nothing “slight” about it. On a $250,000 home loan zero cost mortgage refinancing will cost you another .5%. Suppose you qualify for a 5.0% mortgage refinance if you pay the closing costs yourself. Your payment on this mortgage refinance loan will be $1,342 per month. If you opt for the so-called zero-cost mortgage refinance option and take the higher interest rate at 5.5% your payment goes up to $1,420 per month.
That’s a difference of $78 per month you’re paying extra just to cover a little over $3,000 in closing costs. Now if Tim Manni was writing about a car loan this might make sense; however, we are talking about a 30-year home loan. Let’s do the math: you’re paying $936 a year which after five short years is $4,680 to cover around $3,500 in closing costs?! Tim Manni should sell used cars, don’t you agree? In ten years this balloons up to $9,460…for just over three grand in closing costs. I think you get the point… it’s much better to pay your closing costs upfront when financing something as important as your home loan.
You can learn more about getting the best refinance rates without paying unnecessary fees or markup by checking out my free Underground Mortgage Videos.