Is a No Closing Cost Refinance Right for You?

 

It is not uncommon for homebuyers to experience sticker shock at the many fees and expenses associated with buying a home. Many customers expect to make a down payment in order to obtain a mortgage, but they often forget there are closing costs as well. Similarly, when refinancing a mortgage, there are also closing costs that need to be paid ” either as a single lump sum at closing or by building the costs into your new loan balance. However, there is another option that some lenders advertise called a No Closing Cost mortgage loan. It is extremely important to remember the old adage, œThere is no such thing as a free lunch when considering such an option.

Does a œNo Closing Cost Refinance Exist? 

The short answer is yes. However, before considering a no-closing-cost refinance or any type of mortgage loan, it is important to understand what closing costs are. To put it simply, closing costs are the individual expenses that come with the purchasing or refinancing of a home. Closing costs may include:

Homeowner fees

Included property taxes, homeowners' insurance, and the homeowners' association dues

Lender fees

Costs associated with originating a loan and processing your application

Mortgage points

Fees you can pay to your lender to reduce your monthly mortgage payment and interest rate. Also known as discount points.

Third-party fees

Charges from the appraiser, title company, or credit services 

You may be wondering why there could be any downside to avoiding all of these fees with a No Closing Cost refinance. Well, remember the no free lunch adage. If a lender is going to magically waive all of your costs, they are going to have to recoup it in some other way. The way they do this is by charging you a higher interest rate. The difference in the rate may not seem too bad, but typically that translates to a higher payment that can cause you to spend tens of thousands of dollars over the life of the loan. It is important to consider whether it is beneficial to save $7-8K up front only to wind up paying $20K over time.  

Is There Another Way I Can Refinance Without Bringing Cash to Closing?

If cash is tight and you are hoping to benefit from a refinance with a lower rate and payment, you can usually include closing costs in the new balance. It will depend upon the equity position you have in your home, but in many cases you can include the costs. Even though the balance will be a bit higher, obtaining a lower rate will lower your payment. In fact, many customers lower the term of their loan so as to not go back to a 30 year loan and still wind up saving quite a bit in their monthly payment.  

To determine what loan option is best for you, consult with a mortgage professional. They can run different scenarios so you can decide which path works best for you. 

Rely on the Experts at Butler Mortgage

With over 25 years of experience in the mortgage industry, the professionals at Butler Mortgage are well-equipped to help first-time and seasoned Central Florida homebuyers find the right loan solution to match their needs. If you need help navigating the homebuying or refinance process, contact our mortgage experts today by calling 407-931-3800 or fill out our free consultation form online.