No Cost Refinance
Mortgage Refinance No Closing Costs
In a no cost refinance, it is possible to have the broker or lender pay the costs associated with the refinancing. This comes at the cost of bearing a higher interest rate for your new mortgage.
Other alternatives may be to pay the closing costs yourself, or to finance the closing costs with the new loan, thus adding this to your principal.
Typical costs associated with refinancing include things such as appraisal fees, escrow fees, credit report and so forth.
For example, using our mortgage refinance calculator, we can compare two scenarios.
Assume your current mortgage has $200,000 remaining and your are paying a 7% interest rate with a monthly payment of $1300.
Two options may be to refinance this with a 30 year mortgage at 5.5% interest and add say $4000 closing costs to the principal. Alternatively you could consider a no cost refinance that is at a rate or 6% instead.
If we plug these scenarios into the refinance calculator we can get a comparison of these situations:
Under the case of adding the costs to your principal, your new monthly payment will be $1,158.29, with an interest saving of $96,001 over the course of the loan and your interest savings will have covered the costs in 18 months.
Under the no cost refinance, your new monthly payment would be $1,199.10 and your total interest savings would be $77,307.95.
As you can see, in this case, you will save more over the course of the loan when adding the casts to your principal and be paying a lower monthly repayment, however you will need to be in your refinance loan 18 month for the interest savings to offset the costs.
Of course, any refinance options you may be considering should be analyzed on their merits, but this is the sort of research that can be helpful.