Posted by: msundermier | June 22, 2010

No-Cost (FREE) Refinances are Back!

One of my (and my clients’!) favorite refinance options is back…the no-cost refinance.   They were missing from the market for the last 18 months for a number of reasons, but now they’ve returned and I already have many clients taking advantage of them.  These refinance programs allow a homeowner to refinance to a lower rate and not pay a penny in closing costs.  Like everything, there are pros and cons to these creative options.  Let me explain further.

When a borrower considers the cost of a loan, they must factor two things: the rate and the closing costs.  Many focus on getting the lowest rate possible, but borrowers must realize that lower rates always have higher fees.  Conversely, higher rates have lower fees…sometimes no fees at all.  That’s where the no-cost option comes into play.

A no-cost refinance allows the borrower to pay a slightly higher rate than the standard rate offered by the bank and in return the bank pays the closing costs for them.  There truly are no closing costs paid or financed by the borrower.  These options come in handy for the following homeowners who want to reduce their monthly payment but:

1.) plan to sell their home in the near future, thus shouldn’t incur significant closing costs for short-term monthly savings
2.) can’t afford to pay or finance closing costs
3.) recently paid closing costs on a loan (either to buy their home or to do a previous refinance) and can’t stomach coughing up thousands more again to refinance
4.) prefer to “hedge their bets,” meaning they’d like to refinance for free now yet want to save their closing cost money for later as they believe interest rates may fall further in the near future.

Most of the no-cost refinances I’m quoting on 30-year fixed loans are currently at 5% (for loans over $250,000).  Would you like a 5% rate for free?  That’s not a bad deal.  If you’re interested, call me to discuss your options further.  Don’t assume you don’t qualify.  Also, if you are a reader and client who has taken advantage of a no-cost refinance in the past, please post a comment sharing your experience with and motivation for a no-cost refinance.

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