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No cost mortgage refinancing loan: What are the costs involved in it?

Author: Jessica Bennet
Community Mentor
Ask Jessica
Posted on: 02nd Nov, 2011 11:28pm
In a bid to sell off their products, mortgage lenders come out with a bevy of mortgage offers. One such mortgage offer which aim at enticing more buyers is the no cost mortgage refinancing loan. Here, the catch is that you won’t have to make any fees upfront. In that sense, it is cost less. However, costs are inherent in the refinance loan.

In case of common type of mortgage refinancing loan, you need to pay the monthly mortgage payments as well as the upfront fees. Here the upfront fees include the loan origination fees, title insurance, recording fees etc. But, in case of a no cost mortgage refinancing loan, all these upfront fees are absent. Instead, the rate of interest is kept at a higher level than that of a comparable common type of mortgage refinancing loan. So, here you have to pay a high rate of interest throughout the entire term of the loan.

A no cost mortgage refinancing loan is used as a marketing tool by the mortgage lenders. The aim is to attract more buyers for their loan offers. However, in accordance with good faith estimate (GFE) norms, while offering you a no cost mortgage refinancing loan, lenders must disclose that though there are no upfront fees but the rate of interest is high.
Posted on: 02nd Nov, 2011 11:28 pm
I'm refinancing my existing mortgage and my lender has offered me a no-cost refinancing. Is that a good option for me? Should I go with it?
I personally do not believe that no-cost refinancing is a good option to go for. No-cost mortgages do eliminate costs. They will only convert the costs paid upfront to costs paid over time. No-cost does not mean no-cash. Moreover, the lenders may charge you a higher interest rate if you go for a no-cost refinancing.
Posted on: 03rd Nov, 2011 12:49 am
No cost mortgage=higher rate. It is a marketing method used to get you to call. I believe in calling things what they are. With that said financing your closing cost into your interest rate can make since if you do not plan on staying in the home long, and do not want to increase the balance. The exception to this is when you are going down in years which would excelerate the amount your paying toward
Posted on: 03rd Nov, 2011 04:44 pm
Hi sunshine,

Sometimes refinancing involves the issuance of equity in order to decrease the proportion of debt in the borrower's capital structure. As a result of refinancing, the maturity of the debt may be extended or reduced, or the new debt may carry a lower interest rate, or some combination of these options.

Posted on: 03rd Nov, 2011 09:02 pm
Some banks are offering no-cost/no-cash refinances to their preferred clients, to keep them from moving to another bank. To confirm it's an actual no-cash offer, the APR should be the same as the interest rate. Additionally, the Good Faith Estimate should reflect 0 costs.
Posted on: 08th Nov, 2011 06:19 am
Usually the rate of interest on a no closing cost mortgage refinance is 2% or 1% higher than the rate of interest on a comparable mortgage refinance loan. You need to take into consideration this interest rate differential.
Posted on: 19th Oct, 2012 01:05 am
Seems a good option but do get it checked if there are any hidden intentions that may arise at some point in policy stakes.
Posted on: 03rd Nov, 2012 06:41 am
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