Have high closing costs kept you from considering home refinance
seriously in the past? If so, you may have a renewed interested in
the process of refinancing with the introduction of what is often
called the no closing cost refinance. This is a great option for a
lot of people who do not want to pay a big chuck of change at the
closing of the loan. While it makes the process of refinancing more
affordable up front, you should be aware that nothing is what it
seems. When you are suddenly told that there are no closing costs
associated with refinancing where do you think these fees have gone?
They are still there; they are just paid for a bit differently.
Understanding the No Closing Cost Home Refinance
You may have found yourself practically running to your lender
when you heard that you could get a home refinance loan with no
closing costs. But, you should slow down a bit and understand how
this is done. The term "no closing costs" is nothing more than a
gimmick to help you get in the doors and realize that refinancing
can be affordable up front. No need to think that you got the best
deal of the year, because you are still paying those closing costs,
just not up front.
When you go through the process of home refinance you basically
have three options today. You can choose to bring a check with you
to the closing and pay for the closing costs up front. This can be
thousands of dollars and when you are looking to save money the last
thing you want to do is write a check for a few thousand dollars.
One of the "no closing costs" options is to simply have your
closing costs rolled into the principal balance of your home. So, if
you are refinancing $100,000 and your closing costs would have been
$8,000 you would now be financing $108,000. To many people this is
worth it because they don't have to pay these fees up front but
don't think that you are getting away with paying nothing because
you are also paying interest on that extra $8,000!
Another option under the "no closing costs" home refinance offers
that are out there right now is to simply accept a loan that has a
higher interest rate. Through this higher interest rate, perhaps
half to one point higher, the lender fees will be paid and you will
not have to pay anything at the actual closing. Again, it seems like
you are not paying anything but the fact is that you are actually
paying a higher interest rate to cover these fees so the fees are in
there, they are just hidden.
These can all be great options depending on your financial
situations and your expectations of home refinance. The important
thing is that you do the math and make sure that you are not paying
anymore than you absolutely have to for the refinance process. You
are going to pay a bit more for these "no closing cost" solutions
but sometimes the convenience and affordability up front is worth
the slightly higher costs associated with closing the loan. Simply
take some time to do the math to make sure that you are getting the
best deal possible.
