No Cost Refinance

November 10, 2010

No Cost Refinance is synonymous with the terms no free finances and no cost mortgage refinances. This new concept is a mortgage program or a loan transaction designed wherein the settlement costs are paid by the broker or the lender. These settlement costs include the usual fees such as but not limited to processing and underwriting fees, title search and title insurance, and attorney’s fees. However, this does not mean that you will no longer pay any fees because there will be some costs that the lenders will not undertake.

This may sound promising, but always bear in mind that lenders don’t give anything for free. There are three types of no cost refinance. First is no cash up-front but all the fees and costs are incorporated and clustered into the loan’s interest rate. Second is zero lender fees, but you will have to pay the third-party fees and the last one is the zero points, but you are required and obliged to pay the lender fees and the third party fees.

So this shows that no cost refinance is not really a true no cost mortgage after all. On a true no cost loan, a borrower should only expect to pay 2 kinds of payment. One is per diem interest which means that interest is to be paid from the day of closing to the first day of the following month. When it comes to refinance, the interest will only be paid from the first of the month to the closing day. The other kind of payment you expect to pay is escrows.

Therefore, based on the things mentioned above, why would a lot of people opt to apply for no cost refinance? This question will be answered by explanation hereunder.

Considering No Cost Refinancing

As a Refinance Guide, think carefully of the different steps and various considerations. You must first evaluate and ask yourself if it is right for you. Before jumping into a quick decision, consider first if it is advantageous to your situation.

Usually, it can only be a good deal if you refinance the loan in a few years but to be certain, compare the payments on a no free refinance with the traditional ones. If in case where before the breakeven point you were able to pay off the money borrowed then no cost refinance is right for you, otherwise it is not because it will cost you more.

Another one good reason why no cost refinance is preferable than the traditional refinance even if it will cost more because of the fact that you can use your cash to invest on any other profitable venture.

One more ideal reason is by transferring from ARM or Adjustable Rate Mortgage to a fixed-rate loan. The former changes with market condition while the latter offers a fix rate of payment even if the mortgage rate changes in the future.

The second step on refinancing guide is consider the loan process since you will have to start all over again and undergo with the same process when you took your current mortgage. Make sure to prepare all your records and the lenders will do you a favor of an easier qualifying process especially if you have a good payment history.

The third guide is Loan choices. There are several of loan choices that you can select from. You can choose a fixed rate loans with a period of 15 and 30 years, or an adjustable rate mortgages with varying adjustment periods. The government also provides loans like the FHA or Federal Housing Administration and VA or Veterans Administration, there are also conventional loans and jumbo loans, and also those that require PMI or Private Mortgage Insurance.

To wrap it up, follow the steps on how to refinance your mortgage.

First, know what will affect the rate that you will receive by considering the elements such as : your loan size, your credit score, what is the paid points, period of loan closure, the floating or the locked rate and the amount of debt to income ratio.

Second, know that the rates being advertised are not reliable.

Third, Think over and decide what type of loan you want that will suit your circumstance.

Fourth, shop around for the best rate and for the choice of credible lenders. Be on guard and be cautious of the marketing strategy of the lenders about no closing cost refinancing. This may sound good but there’s always a catch. Others use it to cheat and trick the borrowers to accept the hyper-inflated rates.

Lastly, know the mortgage terms especially if it would be your first time to engage in this kind of loan.