It depends. On what you ask? Well it depends on what you consider cost.
Is cost just closing costs? Or is cost the actual expenditure on your mortgage monthly, yearly, over the life of the loan?
A NO CLOSING COST refinance is easily obtained. Here is how it works:
Lets say that the normal closing costs for a hypothetical mortgage are $2000 (lender fees, title fees, appraisal, etc.). And at a rate of 4.5% the lender is not charging you anything additional (points/discount
fees/etc.). You could take a higher interest rate, which would then allow the lender to credit you money towards your closing costs. The higher the interest rate, the lower your closing costs will be. And vice versa.
So the tradeoff is a higher interest rate, and a higher monthly payment, for lower or no closing costs on your refinance (or on your purchase mortgage).
But is it really a NO COST refinance? Lets assume the higher rate equates to an additional $50 per month on your monthly mortgage payment. You are spending $50 extra per month to save $2000 up front.
It makes sense if you only plan on being in your home another 3 years (or less), but after the 40th month ($2000 saved divided by $50 higher payment per month = 40 months) you are losing money.
Lately HARP (Home Affordable Refinance Program) 2.0 and FHA Streamline Refinances have been hot topics, so homeowners have been flocking to lenders to take advantage of the historically low interest rates. Just keep in mind that there are plenty of options out there regarding closing costs and interest rates. Make sure you know all your options, and make a decision that best fits your goals.
There is no perfect example that will fit every homeowners situation, but if it sounds to good to be true it most likely is.
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[…] loan officers, myself included, talk about No Closing Cost Refinances. One thing to remember on a no closing cost refinance, is that you are financing the costs through […]