Do You Always Pay to Refinance?
Lower your interest rate with no cost to you through no-cost refinancing! Sounds too good to be true, doesn’t it?
What is a mortgage refinance?
Think of refinancing a mortgage as going through the loan process all over again. You're essentially getting an entirely new loan with a different interest rate and paying off your old loan at the same time. You can do this process with your original lender or you can switch to someone new.
What's a no-cost refinance?
We hate to be the bearer of bad news, but a no-cost refinance is a little misleading. Lenders make money from both interest and from upfront mortgage fees. So, there are costs associated with refinancing your mortgage. There’s the appraisal, the escrow account, the credit gathering fee, title search, and the title insurance. Someone has to pay those fees. And usually, your lender isn’t nice enough to offer to cover the cost for you.
No out of pocket fees
So why do you see offers for no-cost financing? Most of the time these offers are really referring to a refinancing loan that you don’t pay out of pocket for. Like we said, someone has to pay those fees. So a lot of times they’re simply added to your original mortgage, so you’re refinancing a larger loan than you technically had to start with. Your loan officer will likely tell you how many years it will take you to break even with the loan and most of the time this route is still worth it as long as you plan on staying in your home for longer than your break-even point.
The other option is to let the lender cover the closing costs, but agree to pay a higher interest rate. You didn’t pay anything upfront, but you’ll pay more in interest over time.
Don’t forget to shop around and negotiate
When it comes to your mortgage, you shouldn’t be shy about finding the best deal. Start by shopping around for the right lender. Then negotiate everything you can. You might be able to negotiate a slightly lower interest rate or lower some of the lender fees. Sure, it’s not a no-cost refinance, but it is a lower-cost refinance.
Veteran? Divorced? Looking to take steps to refinance? Check out this quick and easy guide to getting your financial house in order.