No Cost Home Refinance – Is It Right For You?
Many homeowners are taking advantage of low mortgage rates and choosing to refinance their home. A popular option is a No Closing Cost Refinance. With these No Cost Refinances, the homeowner pays nothing to refinance their home. What's the catch? To understand how a No cost refinance works, let's review how a traditional refinance works first.
The Traditional Refinance
Let's say you have a $ 250,000 loan on your home and you want to take advantage of today's low mortgage interest rates. When you apply for a refinance with your mortgage broker, there will be fees associated with the loan that will need to be paid. In a traditional refinance, you – the homeowner, pay these fees. Here are the fees that will occur on every refinance : Appraisal Fee, Lender Fee, Origin Fee, Title, Escrow, and Notary Fees, Credit Report Fee, and Recording Fee. These fees are customary fees (especially in California) for every refinance – someone always pays these fees . In a traditional refinance, the borrower will pay these fees which are usually rolled into the new loan. So your current $ 250,000 loan may result in a new loan amount of say, $ 255,000. Here's the important takeaway from this example: you should always end up having the lowest interest rate available in the market – lower than if you chose a Lender Paid (No Cost) refinance. Why? Let's look at a No Cost Refinance …
No Cost Home Refinance
A No Cost Refinance means that you, the homeowner, will not have to pay any fees associated with the loan. The fees mentioned above in the Traditional Refinance apply to all loans, even a No Cost Refinance. So how do they get paid and who pays those fees? The Lender pays them . Here's how: When you close your loan with a Banker or Broker, your loan is always sold off, usually to Fannie Mae or Freddie Mac. When your loan is sold, the investor (Fannie or Freddie) pays a premium to the Lender, Banker, or Broker for that loan. The higher interest rate is, the higher the premium the investor pays for that loan. In theorrower Paid (Traditional Refinance) example, closing costs adjusted to $ 5,000. As an example, let's say that the interest rate you got with paying the $ 5,000 closing costs was 3.625%. The rate for a No Cost Refinance loan could be at least .50% higher , or 3.875 to 4.00%. A slightly higher interest rate will be how the closing costs will be paid.
Choose the Best Payment Option Based on Your Situation
Now you know that you have 2 choices in how to structure your home refinance. Have your Loan Officer show you both of these options so you can choose the one that fits your situation best . In choosing, consider how long you intend to stay in your home – the longer you stay in your home and in your new loan, the more likely you'll want a borrower Paid transaction. Have more questions? Send an email to info@resfund.com for specific refinance questions.
