A refinancing loan without closing costs may sound attractive at first glance, but this type of refinancing may not really save you money in the long run. In this article you will learn how a mortgage refinance works without closing costs and how to determine (iStock)
Mortgage refinancing is a common option if you want to reduce your monthly payment or save interest. However, there is also an amount of upfront expenses that you must first cover in the form of new closing costs.
Some mortgage lenders offer mortgages without closing costs. If you think “what’s the catch?” along with whether it would be a sensible option for you, this is what you need to know about the refinancing options for closing costs.
What is a refinancing of costs without closing?
Just as it sounds, refinancing costs without closing means that you do not have to pay in advance for fees such as your application, the loan, a revaluation of your home and a new home inspection. Instead, these costs will be shifted to your principal loan amount so you can pay them off with your mortgage.
Credit providers may also offer you no closing costs to refinance your mortgage, but consequently give you a higher interest rate. This means that you will eventually be able to pay your closing costs in the form of loan interest over time. Although a higher interest rate does not change your principal amount on your mortgage, it can increase your monthly payment, which is the opposite of what most homeowners want to refinance.
Before deciding to refinance your mortgage, you need to do some research. Credible can take you step by step through the refinancing process to ensure you find the best deals for your personal financing.
WHY IT IS A GOOD IDEA TO REVIEW YOUR MORTGAGE WHILE RATES ARE LOW
Significant disadvantage of refinancing costs without closure
Aside from potentially higher monthly payments, the biggest downside is that you are unlikely to get the best loan terms, even if your credit score is very good. You may get stuck with a higher interest rate and you will have a higher principal loan.
There are also some costs and fees
According to Freddie Mac, the average closing cost for a mortgage is about $ 5,000, but homeowners can expect to spend between 2% and 5% of their loan amount. For example, if you owe $ 225,000 on your mortgage and prefer to refinance, your closing costs could be between $ 4,500 and $ 11,250.
Let’s see how it can contribute to a mortgage loan without closing costs. If your home is refinanced with a principal of $ 225,000 and the closing cost is $ 7,000, this amount will only be added to your loan for a new principal of $ 232,000.
With the Credible’s credit repayment calculator, you can see that refinancing a $ 225,000 mortgage over a 15-year term with an interest rate of 3.5% would pay you $ 64,527 in interest. You can also use Credible’s free online marketplace to compare rates and lenders instantly.
Suppose you go with a refinancing at no cost that includes, where your money lender:
- Add the total amount of $ 7,000 to the main loan
- Increase your interest rate to 4.5%
Instead, it could make you pay $ 87,461 in interest over the 15-year term. Visit Credible to get pre-qualified rates without affecting your credit score.
WHO IS RECEIVED FROM THE NEW HOUSE FINANCING MONEY?
Is a mortgage refinancing without closing costs for you right?
A refinancing without closing costs can be the right step if you have too little cash but want to refinance your home quickly. If you do not want to stay in your home for more than five years, you can move and sell it before incurring the long-term costs.
The main advantage is that you do not have to pay the closing costs on your new mortgage loan in advance. Although you will still pay extra costs, you do not have to raise the liquid funds to refinance it.
However, if you really want to lower your monthly payment and save money with interest, you may want to consider other options if you are exporting the numbers and it does not make financial sense. Break the numbers using Credible’s free online tools.
REFINANCE YOUR MORTGAGE BEFORE REMOVING LOW RATES
Other mortgage refinancing options
Here are some other options if you are staying away from a mortgage loan that you do not want to take out.
- Conventional refinancing: Do you have another mortgage, but want to refinance to a regular mortgage? This is easy if you have a good credit rating in your home and can cover the closing costs. If you refinance from a 30 year to a 15 year mortgage, you can also save a lot of money.
- Payment refinanced: Refinance your new mortgage and borrow money at the same time with this option. With a payable refinance, you can also roll in your closing costs in the amount of the loan and also receive a check. So, your new loan amount is likely to be higher due to the number of closing costs and the cash you receive.
- FHA streamline: To streamline the refinancing of FHA, you need less paperwork (often no new appraisal of the home is required), so you can save money on closing costs and quickly get a new home loan with a lower interest rate.
Are you interested in refinancing your mortgage? Visit Credible’s online marketplace to buy money providers and compare rates.
HOW TO GET THE BEST MORTGAGE REFI RATES