No Closing Cost Refinancing

With a fluctuating market, no closing cost refinancing seems like a great way to eliminate the ever-changing fees associated with securing a new home mortgage. Obtaining a loan is not cheap, especially a home loan. Refinancing is no different. The same charges apply. There are processing fees, insurance, as well as lenders, brokers, and other third parties to pay. Someone has to pay these costs. They don't just go away. Someone has to pay for them - usually that someone is the borrower. Unfortunately, marketing can be misleading and even deceptive. The costs are still there, just paid for in different ways. In traditional mortgages, the closing costs are paid for up front, usually by check. But in no closing cost refinancing, the money is incorporated into the principal balance or covered by a slightly inflated interest rate.

No cost loans have been available since the early 1990s and gained popularity when interest rates fell and property values soared. Today, most national banks and mortgage companies offer a no closing cost refinancing option. Usually only available for loans over $250,000, these financial institutions rarely waive their fees, but some lenders will repackage them, so that there is little cost at signing. These costs usually fall into three categories. Points, or prepaid interest includes fees paid to the lender or broker. Non-recurring closing costs cover the one-time expenses associated with setting up and processing the contract. Appraisals, credit report, title transfers, notary and recording fees, document preparation, underwriting, and administration are all considered non-recurring costs. Recurring costs include items like taxes, mortgage interest, and insurance. When a borrower does not have the money to cover all the fees involved, no closing cost refinancing could be the viable option. These costs can be included in the principal or paid by interest. Interest rates usually run an extra quarter percentage each month. They can save a lot of money, but when rates begin to rise again or an owner remains in the home longer than three to five years, this loan option often ends up pulling more money out of a borrower's wallet. The best option depends on the homeowner's goals and amount of cash available for closing costs.

But what many borrowers don't know that no closing cost refinancing does not include all the charges needed to be paid at closing. Fees associated with third parties such as per diem, interest from the day of closing to the first day of the following month when the first installment is due, or interest on the previous mortgage from the first of the month to the closing day are not included. Recurring costs are also not considered part of the package agreement. Depending on the lender, other fees could include courier charges, flood certification or a range of other items. Always make sure that fees are understood and in writing prior to the agreement. True no cost loans only exist when the lender collect no fees and pays all other settlement costs on behalf of the borrower. This is very rare, although no cash loans, zero points loans and zero fees loans are available under other circumstances. Everything has a price - even salvation. Jesus paid the ultimate price for us. "For ye are bought with a price: therefore glorify God in your body, and in your spirit, which are God's." (1 Corinthians 6:20)

Then who pays the cost? Usually, the burden falls on the borrower, either through an increase in principal or interest rate. But this is not always the case. In certain situations, the lender or broker may pay the fees associated with no closing cost refinancing. This happens when they receive a yield spread premium, also known as a gain-on-sale incentive or par-plus pricing. Sellers will pay lenders these rebates for bringing in new transactions at interest rates above the current market rate. Lenders then use the extra money to pay charges associated with the contract. Sometimes the seller will agree to pay these fees directly on behalf of the buyer. Some lenders who are associated with an appraiser or title company will waive their own fees to bring costs down. Most of these charges are non-recurring costs only.

No closing cost refinancing can be beneficial for certain borrowers. The first step is to determine the break-even period for the loan. This is the point in the loan term where the finances saved at the beginning catch up with the extra cost being integrated into the loan. Usually that period is within three to five years. If a homeowner only plans to stay in a house for short period of time, he or she actually saves money by staying under this break-even period. However, long-term homeowners who extend that period, pay more money than if they paid the closing cost upfront. Borrowers using this option can usually get a higher amount of money out of refinancing and avoid paying further private mortgage insurance (PMI) that can be very expensive. In a court hearing, the Department of Housing and Urban Development (HUD) won a case that ruled that fees charged in a real estate transaction must be tied to actual services rendered. Last minute charges to boost an agent's income are unacceptable.

Surprisingly enough, all upfront fees for no closing cost refinancing are negotiable. When shopping, request a written estimate of all fees before committing to one agent. Compare agents. Get referrals and check with the Better Business Bureaus to review complaints. When possible, use a lender who is trusted and reputable. Every lender is unique and has different fees and regulations. Borrows needs to weigh all the options and do their homework thoroughly to get the best possible deal for their personal situation.