No Closing Cost Refinance, No Fee Refinance Mortgage

The financial terms of ‘no closing cost refinance’ and ‘no fee mortgage refinance’ refer to a policy where a lender pays fees, such as the appraisal fee, the underwriting fee, escrow and title fees, and other assorted processing fees, in lieu of the borrower paying these fees.

Benefits of No Closing Cost Refinance

Depending on the size of the refinance loan, the interest rate, the number of years that the loan is scheduled to be paid, and the future plans of the borrower, a no cost refinance loan can be a savvy financial move. If a borrower plans to sell a piece of property a few years into the future for a significantly higher amount of money, the decision to not pay the assorted fees (which can frequently amount to several thousand dollars), will allow the borrower to make a significant amount of money on his or her investment.

If the loan is for a relatively small amount of money and has a low interest finance rate, allowing the lender to pay for the costs can also be financially advantageous, even if the borrower has no immediate plans to sell the property for a higher amount of money.

Downsides of No Points No Fees Refinance

However, many lenders who offer no points or no fee refinance loans frequently offer much higher interest rates than a standard refinance loan where the borrower pays for the associated fees at the time the refinance agreement is signed. If a borrower plans to pay down a 30 year mortgage at a higher percentage rate than he or she could have been eligible for if they had paid the upfront fees, the compounded interest frequently costs far more than paying the fees directly and securing a lower interest rate loan would have.

If the house or property has a relatively high market value, a no closing cost refinance may ultimately be far more expensive than a traditional lower interest rate second mortgage.

Personal Financial History

Determining the benefits of such a loan is based heavily on an individual’s financial history, their plans for the future, and how much cash they have at a particular moment in time to spend on a major payment, or to qualify for a loan. Frequently, home owners benefit from refinancing a desirable property that allows them to invest in other properties or lucrative projects that will generate other income. If the home owner has no previous large purchases on their credit history and a relatively small amount of liquid assets during a time when they require more, a no fee / no cost refinance can provide the necessary liquidity while also allowing the home owner the security of signing in to a stable refinance rate.

The suitability of no cost refinance mortgages must therefore be weighed against each individual factor. Home and property owners should never feel pressured into a financial situation. A lender who is too eager to secure a loan may have motives that conflict with open and honest lending policies.