Understanding a No Cost Refinance
Many people do not believe that there even is such a thing as a no cost refinance but there really is. There are just some issues that you have to take into consideration here if you are trying to determine whether or not a no cost mortgage refinance is really going to be worth it.
What it is
A no cost refinance is one that has an interest rate that is high enough that the lender's rebate covers the closing costs that are incurred. Lenders charge points on low interest rate loans and then pay them on high rate loans and for example, if you take a 30-year fixed rate mortgage they might quote 5.75% with 2 points, 6.25% with zero points, and 7% with a 1.5-point rebate. Then if the 1.5 point rebate covered with the settlement costs, 7% would come out as being the no cast rate.
The basic idea with a no cost refinance then is that paying the settlement costs in the rate. If you pay off the mortgage in a few years it is a good deal and if you have it for a longer amount of time it is going to be a costly deal.
What is Covered
There are a few different costs that are covered with a no cost refinance. Make sure that if you are ever shopping for a no cost refinance loan that you and the lender come to an agreement in terms of exactly what it means and what is involved in the loan.
Overall the no cost refinance is really a winner on most accounts but especially so for the borrower who is planning on selling his house within a couple of years. This is important because with a regular refinance loan, if you were to sell your house a few years or less afterwards you would most likely even end up in debt because you would not even have enough time to make the refinancing costs back, let alone a profit on top of that.
Refinancing a mortgage almost always ends pleasantly and the majority of the time is very profitable. It is important however that you take all the time necessary in order to make yourself educated and aware and be sure that you are sure of all the details before going through with anything.
Mortgage brokers are available to help you through this process and ensure that you are taking the right steps and making all the right decisions.
