No-Closing Cost Refinance Overview
No-closing mortgage refinance means that you can refinance your mortgage without paying the initial mortgage to refinance fees. These fees are usually between $2,800 to $4,000 and allow you to get a higher interest rate or higher loan balance. Let's see if this is the right option for you.
What Are No-Closing Cost Mortgages?
These are some of the most common reasons that people refinance:
You can get a lower interest rate on your mortgage, which means you will pay a lower monthly amount.
To access the equity in your home to take cash out -- this increases monthly payments and the loan balance.
Combining a first and second mortgage to create a new first mortgage.
To eliminate mortgage insurance.
A new refinance mortgage costs between $2,800 and $4,000 in all cases. This depends on the market value, your home's worth, and the amount of your loan.
These fees include title, settlement, appraisal, and underwriting fees.
Lenders will often talk about "no closing cost mortgages" when you are looking for a loan.
This does not mean that you aren't paying closing costs. It just means that these closing costs will be re-allocated in another way.
Rate Adjustment On No-Closing Cost Mortgages
A rate adjustment is one way that closing costs can be re-allocated. Your rate will go up if you don't pay the closing costs.
The amount of your loan depends on how much you borrow. Rate adjustments to cover closing costs will be higher if your loan amount is lower. On the other hand, your rate will generally be between if you get a mortgage with zero closing costs. Twenty-five percent to.5 percent.
If you refinance a $200,000 loan, the rate you pay might be.375% higher than if closing costs are included. This would mean that your monthly payment would increase by $42 per month over the loan's life, but you'd save $3,000 at closing.
Adjustment Of Loan Amount For No-Closing Cost mortgages
Closing costs can also be re-allocated by adding them to the loan amount. This will allow you to finance the closing price over the loan's life.
Your loan amount will increase to $203,000 if you take out a $200,000 refi loan with $3,000 closing costs. Your monthly payment would go up by $13. You'd also get a lower rate than the one above.
How Do You Choose The Best No-Cost Option?
If you compare a rate adjustment to a loan amount adjusted using the above scenario, the loan amount adjustment might be better. This is because it saves your monthly payment while keeping the rate low.
Each client's situation is unique because the loan amount and closing costs are subject to change. In addition, rate markets are constantly changing, so closing costs can change, and the rate adjustment is required to cover the shifts.
This is why it's essential to explain your whole situation to your loan officer and allow them to recommend the best option for you.
Do Zero-Closing Mortgages Only Apply to Refinances
These mortgages with zero closing costs are often used to refinance, but they can also be used to obtain purchase loans.
The best way to purchase without any cost is to increase the rate.
Because it can cause problems with qualifying, and increase your loan-to-value ratio, it is less common to add closing costs to a loan amount for a purchase.
Ask your lender for options based upon your profile if you want to save cash on a home purchase.
