To close a traditional refinance mortgage, you do need to payfor things for instance the title search, title insurance,attorney’s fees, flood certification fees, courier fees, recordingfees, etc. On a no cost mortgage refinance, the lender foots thestatements for these expenditures without raising your loanbalance.Mortgage refinancing from a new financer comes with closingcosts. They are of two types: recurring and non-recurring.Application fee, lender fees, title search, broker commission,escrow fees, and recording charges are included in non-recurringclosing costs. Whereas, recurring closing costs include interest,property taxes, and insurance. The borrower can pay the amount as alump sum fee at the time of closing the deal, or it can added tothe mortgage, and repaid over the reimbursement duration. A no costloan will attract a higher rate of interest on the mortgage ascompared to the normal “no points” mortgage. The risein interest rates is typically around .250% to .500%.No closing cost refinance is useful for people who do not haveenough cash in hand, or who intend to purchase the property for afew years only. One can calculate the difference in the totalpayment for a no cost loan and a loan with costs. Divide thisexcess amount into the non-recurring costs one will have to clearat closing. This simple calculation can determine how many monthsit would take to regain the outlay of the closing costs. One cancompare this duration to the period one intends to own theproperty, and find out what is profitable.Here is an example to understand the pros and cons of no closingcost mortgage refinancing. Let the loan amount be $300,000.Option A – No cost loan, interest rate of6.25%, and monthly payment of $1,847Option B – A zero point loan, interestrate of 6.00%, and monthly payment of $1,799Non recurring closing costs – $2,800Comparing these two cases, the difference in monthly paymentscome out to be $49. If one divides this amount across the closingcosts of $2,800, the number of months required to re-coup would be58. That is, it would require less than 5 years breaking even thecosts of a no cost loan and a zero point loan. In this scenario, noclosing costs loan is a better option.Let’s compare two other cases.Option A – No cost loan, interest rate of6.25%, and monthly payment of $1,847Option C – One point loan, interest rate of5.75%, and monthly payment of $1,751Total non-recurring closing costs (including point) – $5,800The difference in monthly payments would be $96. Dividing itinto the $5,800 closing costs the period to re-coup turns out to be5.01 years. Even in this case, for an individual intending to ownthe property for few years, no cost loan makes more sense.Pro & Cons for No Cost Refinance The mainbenefits of availing a no cost refinance is that it could savethousands of dollars in some situations. Depending on the number ofyears that you are going to avail your loan for, possibly you mightbe able to find good deal when availing this type of plan. It alldepends on the economy and what you are being presented though, ifyou’re able to come up with a unique way to refinance whichare more gainful to you, then you should always get it.About Author:No Closing CostRefinance is one of the best ways to refinance your mortgage. Why paythousands of dollars in closing cost if you do not have to? Lenderor Broker will pay settlement costs.
