The Truth About No Cost Refinance Loans Revisited

Are you considering a no cost refinance loan for your next home mortgage? You’ll see these refinance loans advertised by today’s best mortgage lenders and by most banks as an option at closing. If you’re strapped for cash the no cost refinance might seem like your only choice, but you should know what you’re giving up. Here’s the scoop about no cost refinance offers, how they really work and what you’re sacrificing in the long run to help you make an informed decision for your next home loan.

No Cost Refinance Lenders

No cost refinance can mean different things depending on your needs. First, let me tell you what a no cost refinance is not. There is no such thing as a free mortgage refinance…period. Every home loan has fees, origination and underwriting costs that have to get paid by someone. The question for the truth about no cost refinance offers is who’s paying the fees and in exchange for what?

There are two types of no cost refinance mortgage loans. There are “no cash out-of-pocket” refinance rates, meaning you’re not required to plunk down your cash at closing because all of the refinance fees are being rolled into your loan balance, and there are true “no cost” refinance rates where the fees are being paid by someone else, in this case the lender.

Why Would Mortgage Lenders Pay Your No Cost Refinance Fees?

Simply put, what’s in it for them? Mortgage lenders don’t do anything out of the goodness of their hearts (do they even have a heart?) so why on earth would they pay your no cost refinance fees?

The truth comes down to how mortgage lenders make their money, think profits. It might surprise some homeowners to learn that most lenders don’t profit by sitting back and collecting the interest from your payments, especially with today’s current refinance rates.

Lenders profit by selling home loans to investors. Home loans with higher than market refinance rates bring in the most profit. One way lenders get homeowners to agree to higher than current mortgage refinance rates is by offering no cost refinance loans.

In exchange for agreeing to higher than current refinance rates the lender pays your loan origination fee, mortgage underwriting fees and other closing costs. You get a no cost refinance with no cash out of your pocket and your mortgage balance doesn’t go up as a consequence.

Sounds like that no cost refinance is a great idea right? Remember, your payments are based on the term-length you choose and how low your refinance rates are. While you can control both, the higher your refinance rates the more cash comes out of your pocket every month for the entire time you keep the mortgage.

How Much Higher Will Your Refinance Rates Go?

The answer depends on how much you agree to pay at closing. One common mortgage mistake with no cost refinance offers is neglecting to comparison shop lender fees. If you go into refinancing thinking that the closing costs you agree to don’t matter because the lender is paying, you’re going to get screwed no matter what.

No cost refinance offers work like discount points in reverse. Remember that a discount point is a fee you pay to buy down your refinance rates. If you pay one point, one percent of your home loan amount, you’ll typically lower your refinance rates by .25%. Well, the no cost refinance offers generate a credit of one percent of your mortgage amount for every .25% you allow the lender to mark up your refinance rates.

Can you see how these no cost refinance loans work like discount points in reverse?

How much your refinance rates go up depends on how much your actual closing costs are; the better you shop around the less markup you’ll need to cover lender fees. This also means your payments will be lower than the neighbor that didn’t do their homework and blindly accepted whatever fees the lender required, figuring “heck, the lender’s paying so whatever.”

Mortgage Refinance Fees Matter

The truth is regardless of how low your refinance rates are the fees you pay refinancing your home loan make or break the deal you’re getting.

With no cost refinance offers the fees that your lender pays are responsible for how much your payment goes up. Pay less at closing and not only will you get more benefit from today’s low refinance rates but you’ll have more cash in your pocket at the end of the month.

How to Pay Less For Mortgage Refinancing

Fortunately, shopping for the best refinance mortgage rates AND fees is not difficult if you go about it the right way. The government recently overhauled the Good Faith Estimate making it a much more effective comparison shopping tool. (It used to be completely useless)

The secret to getting the lowest rates and closing costs is how you use the new Good Faith Estimate for your refinance mortgage rates comparison shopping. First, watch out for quotes that include discount points.

Discount points make lenders a boatload of cash from unsuspecting homeowners. It made sense to pay points in the 1980s when people were getting double-digit mortgage refinance rates. Today it’s just a waste of your cash.

Make sure when you’re requesting quotes that the mortgage refinance rates DO NOT include discount points. If you’re curious about how paying this mortgage fee affects your payments there is a table on page three of the Good Faith Estimate, but always start with zero point quotes.

Watch Out For No Cost Refinance Fees

Sounds like a contradiction right? Not cost refinance loans don’t have fees right? Wrong! Remember your payment amount is going up by the amount the lender is paying for you. You want the smallest increase in the best refinance rates possible.

Focus on the mortgage lender fees found on page two of your Good Faith Estimate starting with the loan origination fee. This is paid to the person or company arranging your mortgage refinance. Many brokers will tell you that one percent is standard; however, I’ve reviewed community and military credit unions that offer no cost refinance loans with loan origination fees as low as $400.

If you take one thing away from reading this today it should be that the closing costs from your no cost refinance make or break the deal you’re getting. The less you agree to in mortgage fees the more benefit you’ll get from today’s best refinance rates.

Page Two Of Your Good Faith Estimate Is A Goldmine

As I mentioned the new Good Faith Estimate is the best thing Uncle Sam has done for refinance rate shoppers well, ever. If you’re interested in a no cost refinance you’ll find the credit being generated to cover your mortgage fees in box 2a. You want this credit to be as low as possible while still covering your closing costs so your monthly payment doesn’t go up any more than necessary.

Section B on page two of the Good Faith Estimate includes lender fees you can shop around for and third party fees. Comparing these fees from a variety of banks, lenders, and credit unions will give you a good baseline for what is reasonable. Don’t be afraid to haggle over fees found on page two of your Good Faith Estimate. Mortgage brokers, banks and credit unions are a dime a dozen so if you’re getting pushback from a loan officer simply scratch them off your list.

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You can learn more about getting the best no fee refinance with the lowest payment possible for your next home loan by checking out my free Underground Mortgage Videos.

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Overpaying The Loan Origination Fee Could Screw Up Your Refi

If you’re considering taking advantage of today’s best refinance mortgage rates to lower your payment or ditch that Hybrid Adjustable Rate Mortgage, there are several things you must know about closing costs to avoid overpaying. One of the most important fees to consider when refinancing is the loan origination fee. What is it and how much is a reasonable amount to pay for mortgage origination? Here are several tips before you refi to help you avoid pay too much for your next home loan.

Loan Origination Fee Definition

Simply put, the loan origination fee is the fee paid to the person or company arranging your refi. Also called origination points, this fee is typically paid to a broker or faceless giant like Amerisave or Wells Fargo Refinance. How much should you pay for the loan origination fee? One percent of your home loan amount is perfectly reasonable; however, it’s not uncommon to find brokers charging double this amount, even more.

Mortgage loan origination fees are negotiable, so when shopping for a broker offer to pay one percent as a condition for doing business.

The reason your loan origination fee is so important is that you’ll need to recoup your out of pocket expenses from mortgage refinancing before gaining any benefit from a lower payment amount. Here’s an example to illustrate why recouping your loan origination fee is so important:

Should I Refinance My Mortgage?

Suppose for instance that you’re refinancing your home mortgage for $275,000 and the old interest rate was 6 percent. Once you find an honest mortgage broker willing to work for a one percent, the loan origination fee portion of your closing costs will be $275,000. There are other lender fees to consider and negotiate; however, for the purpose of this discussion we’ll assume that the total closing costs on this transaction are $5,500.

Assuming you’re able to lock in today’s going refinance mortgage rate of 4 percent your new monthly payment will be $1,312. The old payment at 6 percent was $1,648 which represents a monthly savings of $336. You can easily determine how long it will take to recoup your closing costs by dividing the total out-of-pocket expenses by the amount you’re saving each month. This will tell you the number of months it’s going to break even recouping your expenses from mortgage refinancing. In this example it’s going to take ($5,500/$336=17) seventeen months to break even. (Which is really good… your results may vary)

The average homeowner refinances their mortgage every four to five years. If you engage in this kind of serial mortgage refinancing before recouping your cash you’ll be losing money no matter how low your refinance rates.

There are of course other fees to consider besides your loan origination fee. Paying lender junk fees will lengthen the amount of time it takes to break even by raising your total closing costs. Some examples of junk fees you’ll encounter when refinancing your home include rate lock fees, application fees, processing fees and courier fees. If you find any of these on your Good Faith Estimate when shopping for mortgage rate quotes consider finding another broker to arrange your next home loan.

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You can learn more about avoiding unnecessary fees and markup on your next home loan by checking out my free Underground Mortgage Refinancing Videos.

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Refinance No Closing Costs

Are you considering one of those refinance no closing costs home loans? Are lenders that boast refinance no closing costs home loans telling you the truth or can falling for one of result in overpaying thousands of dollars? Here are several tips to help you make an informed decision before taking out a refinance no closing costs mortgage loan.

Refinance No Closing Costs Home Loans

Taking out a new home loan to buy or refinance your existing mortgage loan costs thousands of dollars in lender fees and closing costs. Refinance no closing costs sounds like a great deal; however, you’re probably familiar with the saying “there are no free lunches” and the same is true of your home mortgage loan. I mean why would lenders offer refinance no closing costs options unless there was something in it for them?

What your lender isn’t telling you about that refinance no closing costs home loan is that you’re trading paying a few thousand dollars in closing costs for a higher mortgage rate and higher payments for the entire duration of your home loan. The following will illustrate why these home loans are a bad idea.

Unnecessary Mortgage Rate Markup

Mortgage originators get paid for the work they do arranging your home loan in a number of ways. These brokers, companies, or websites charge you an origination fee for the work they do on your home loan, which appears on your Good Faith Estimate as a percentage of your home loan amount. They can also collect a fee paid by the mortgage lender for marking up your mortgage interest rate, with or without your consent. This fee is what’s used to pay your closing costs in the case of a refinance no closing costs home loan offer.

The Hidden Truth About No Closing Costs

The fact that you’re not paying closing costs or an origination fee does not change that the person arranging your refinance no closing costs home loan is going to get paid for their work. It just means that someone else is paying the origination fee for you. What’s wrong with that you ask? Refinance no closing costs when someone else is paying the origination fee has to be a good deal…what could possibly go wrong?

The problem is that your lender is paying your closing costs and origination fee in exchange for a higher mortgage rate. The fee lenders pay for locking and closing your refinance no closing costs home loan with a higher mortgage rate is called Yield Spread Premium and always results in paying a higher than necessary mortgage payments for the entire duration of your home loan.

Yield Spread Premium in Action

Here’s an example to illustrate the effect of this markup for your refinance no closing costs home loan. Suppose you’re refinancing your home loan for $315,000 and your broker quotes you a refinance no closing costs rate of 6.75%. While you won’t have to pay the loan origination fee or other closing costs, (a typical loan origination fee is one percent of your home loan amount or $3,150 in this case) what your broker isn’t telling you is that you could have had a 6.0% mortgage rate had you paid your origination fees and closing costs up front.

How does this higher than necessary mortgage rate affect your monthly payments? In this example the payment on a 30-year, fixed-rate home loan would cost you $2,043 a month. If you had paid your closing costs and gotten the mortgage rate you deserve at 6.0% your payment would only be $1,888. That’s a difference of $155 per month or $1,860 every year that you’re paying unnecessarily.

In just five years that origination fee of $3,150 that you avoided paying with a refinance no closing costs home loan will cost you a whopping $9,300, In ten years you’re out $18,600…I think you get the picture why these loans are a bad idea. It’s always best to pay your closing costs up front and avoid the Yield Spread Premium that comes with refinance no closing costs home loan offers.

You can learn more avoiding unnecessary markup and junk fees to get wholesale mortgage rates for your next home loan by checking out my free Underground Mortgage Refinancing Videos.

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Here’s a quick sample to get you started today by exposing a dirty secret your lender would rather you didn’t know…

Lowest Current Home Loan Interest Rate

Are you chasing the lowest current home loan interest rate and want to avoid paying junk fees and unnecessary markup? Nearly all of the mortgage quotes you find online have been marked up unnecessarily to create profit for someone. Avoid this unwanted markup of your current home loan interest rate and you can save as much as $1200 per year or more on your next home mortgage loan. Here are several of my best tips to help you get the lowest current home loan interest rate without paying unwanted markup and junk fees.

Best Current Home Loan Interest Rate

Everyone claims to have the best current home loan interest rate for your next mortgage; however, most loan originators double, even triple their profit at your expense by marking up your current home loan interest rate and trying to slip junk fees past you. Once you avoid this unwanted markup when refinancing you can take advantage of the wholesale nature of mortgage loans and keep a lot of cash in your pocket after paying your home loan every month.

Wholesale Current Home Loan Interest Rate Offers

Most brokers will tell you that you that you can’t get wholesale rates because they’re simply not willing to give up their commission for closing loans with higher than necessary rates. Truth be told, you can refinance with a current home loan interest rate that hasn’t been marked up simply by paying a flat origination fee of one percent of your loan amount.

How can you get a wholesale current home loan interest rate for your next mortgage loan? You don’t have to be a financial guru to pull it off; you just need to find the right person to arrange your next mortgage. There are plenty of honest, hardworking brokers out there who are willing to give you this deal; you just need to find one.

Mortgage Yield Spread Premium

First of all, what is this unwanted markup I’m talking about? Mortgage Yield Spread Premium (YSP) is a fee paid by the lender to loan originators who lock and close home loans with a higher than necessary interest rate. Your loan originator knows the rate the lender approved you for; however, this person marks it up based on what they think you’ll pay to get an additional commission from your lender. Sound just like a used car salesman right? Some brokers are as bad if not worse than a used car salesman. (no offense to any used car salesmen that might be reading this)

How to Avoid the Mortgage Fat Cats

Avoiding people who want to take advantage of you is easier than you think. Local brokers are best because they have access and the ability to negotiate a wholesale interest rates where banks and large national chains simply do not offer wholesale mortgage rates to their customers.

You can learn more about getting a wholesale current home loan interest rate for yourself by checking out my free Underground Mortgage Refinancing Videos.

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Here’s a sample of what you’ll get when you register for free access to my password protected member’s area. This video is about your lender’s dirty secret which according to the Secretary of Housing and Urban Development will cost homeowners sixteen billion dollars this year alone.

The Truth About Home Refinance Rates

If you’re a new homeowner thinking about refinancing, or even a seasoned real estate investor looking to improve your bottom line, there are several things you need to know about home refinance rates. Many people compare mortgage loans to retail products like kitchen appliances or televisions. While it’s true that mortgage loans are basically retail in nature, if you take this mindset when comparing home refinance rates you’re going to overpay like 95% of your neighbors. Here are several of my best mortgage refinancing tips and the ugly truth about home refinance rates.

Best Home Refinance Rates

What’s a good mortgage rate when you’re refinancing your home loan? At the time, it’s the lowest home refinance rate you can get without paying unnecessary fees. Which fees are unnecessary? That’s the problem isn’t it? There is no roadmap (until now) to help you shop for a mortgage without paying unnecessary markup of junk fees. This is after all what makes mortgage loans “retail.”

For consumers retail products are the goods and services you purchase every day. These products and often services have all been marked up to make a profit. Someone purchased these goods and services at a much lower price and sells them to you at a much higher price. The same is true of home refinance rates. Mortgage companies and brokers offer home refinance rates from wholesale lenders that have been marked up to create them a profit. The rate you get, which also determines how much your monthly payment has been marked up to create a commission for the person arranging your home loan.

Hold the phones… aren’t you already paying this person a perfectly reasonable loan origination fee for their work on your mortgage loan? Not only are you paying (possibly even overpaying) this fee, many mortgage companies and brokers in a sneaky, behind the back fashion are marking up your home refinance rates to double, even triple their commission on your home loan. This markup of your home refinance rates drives up your mortgage payment unnecessarily, which during tough economic times like todays, should be a capital offense.

You might be reading this article today thinking there’s a simple solution to all this home refinance rates nonsense, I’ll just refinance with my bank. Banks are direct lenders and cut out the middleman right? The problem with your reasoning is that banks are greedy and like other so-called direct mortgage lenders do not offer their customers wholesale home refinance rates. Banks and other direct lenders fund their home loans with their own money making them exempt from the current Real Estate Settlement Procedures Act (RESPA). You see, in the 90s the Banking Lobby paid off your Congressional Representatives to have the laws changed to exclude banks and when this happened all of the direct lenders jumped onboard. (It’s not called bribery when it’s legal…it’s called lobbying)

Because of this loophole in RESPA legislation your bank and all of the other direct lenders out there aren’t required to disclose their markup or profit margin on your home refinance rates. While they don’t receive a fee directly by marking up your mortgage rates like mortgage brokers, these lenders profit when your home loan is sold to investors on the secondary market. Banks and direct lenders know that home loans with higher than market mortgage rates bring them a tidy profit when your loan is sold, therefore the mortgage rates they offer their customers are always higher than wholesale.

How to Get Wholesale Home Refinance Rates

So how do you sort through all the crap, junk fees, and mortgage broker B.S. to get wholesale home refinance rates? You don’t have to be a financial guru to pull it off; you just need to find the right person to arrange your next home loan. We’ve already discussed why you won’t find this person working for a bank or direct mortgage lender; you need to find the right sort of mortgage broker willing to work for a flat origination fee without marking up your mortgage rate. It is possible to refinance your home with a wholesale mortgage rate paying only a flat origination fee of one percent and I’ll show you how to do it, without charging you a penny.

You can learn more about getting wholesale home refinance rates without paying unnecessary fees by checking out my free Underground Mortgage Videos.

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Here’s a sample of you’ll get… this module explores the unnecessary markup of home refinance rates that is responsible for nearly all of your neighbors overpaying for their home loans.