No Cost Refi

Nowadays, it seems one cannot watch an entire news broadcast on TV without seeing a "No Cost Refinance" advertisements. What is "No Cost Refi" and is it better than mortgage home loans with traditional settlement costs?

Regardless of the type of home loans, there will always be closing costs. Title companies will always charge for their title works and county recorders will always charge recording fees. "No Cost Refi" loans are "no cost" only in the sense that these costs do not come directly out of the borrower's pocket. The costs, however, are paid indirectly with higher interest rates. In most cases, the benefits of "no cost" mortgage loans do not justify the high cost of high interest rates.

The majority of no-cost refi offers are actually rather hollow, as they do not include certain substantial, variable costs associated with refinancing a mortgage. One example is title insurance, which is a variable cost billed by a third party insurance company.

No cost refi offers from most lenders do not include taxes or insurance, such as mortgage taxes and any pending or payable property tax or homeowner's insurance bills for the near future.

Lenders advertising no cost refi loans are actually misleading borrowers. Many of the costs asscoiated with doing a no cost refi are in small print and borrowers won't find out until they get to the closing table.

There are a few situations where a "no cost" loan is truly a no cost loan. In these cases the costs associated with closing are absorbed through a higher interest rate. The higher interest rate means the lender pays the broker a higher percentage; the broker can then use a portion of that percentage to pay your closing costs in what is called a "broker credit". In these situations there is the benefit of no closing costs; however the down side is that the interest rate and monthly payments are generally higher.

No cost refi's typically come with a much higher interest rate.

» DISCLAIMER: The information contained in this article on 'No Cost Refi' is a collection of contributions by licensed mortgage professionals and is not the opinion of Broker Outpost LLC. Always consult a licensed professional before applying for a mortgage.