Doing a refinance for no cost sounds like every homeowners pipe dream. If you do not have much money saved to spend upfront when you take out the mortgage, getting rid of all the extra fees can sound like it would save you a lot of money. But is it?
The problem with a no cost refinance, just as with so many types of refinance that look good at the beginning, is that the lender recoups the money it loses on fees by charging you a higher interest rate. A traditional refinance usually has a lower interest rate than a no cost refinance. Ultimately, this can lead homeowners to pay more in interest than they would have paid in extra fees (but still less than they would if they hadnt refinanced at all).
For this reason, homeowners are often advised to take out a no cost refinance only if they can afford to make higher monthly payments than the terms of the loan require, thereby paying off the loan before interest has time to accrue. There are also several other reasons you might want to take a no cost refinance with a higher interest rate. Perhaps you do not have the money to cover higher closing costs now, but you foresee improved income in the near future and want to take advantage of lower interest rates now. Or maybe the higher monthly payments are offset by tax advantages triggered by the higher interest rate. You may even find that interest rates dip so low that jumping into the market right away is a wiser decision than sitting about and waiting to accumulate enough money for a traditional refinance. In refinancing, as in anything to do with real estate and mortgages, timing and your own particular situation are factors as important as any impersonal math.
So is a no cost refinance right for you? Weigh your available offers and run them through a mortgage calculator. Make a realistic evaluation of your own ability to meet higher monthly payments, or to make higher payments on your own to shorten the term of a loan. Consider whether there is a less expensive way to raise the money for the refinancing fees. If, after all your calculations, a no cost refinance is the best option for you, then refinance with a full understanding of what you are agreeing to. Used the right way, a no cost refinance can be an excellent financial choice. Similar topics Mortgage payment calculator . Home loan . Mortgage payment calculator . Mortgage refinancing .

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by: marciafreeman
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