Things To Know About No-Cost Mortgage Refinance

A no-cost mortgage refinance is one in which the borrower pays the settlement and closing costs in the interest rate. The lender sets the interest rate slightly higher than it otherwise would so it covers most of the borrower’s closing costs.

What’s Covered In No-Cost Mortgage Refinances

If you have a true no-cost mortgage loan with your lender, you should be paying nothing to the lender up front, and the lender should be paying other settlement costs for you without the amount of the loan increasing.

This doesn’t, however, mean that there won’t be costs for which you will be responsible, including escrows, insurance, any transfer taxes, and a per day interest on your old loan. Check with your insurance company about what additional homeowners’ insurance fees there will be due to your refinance. You can check with your county and state tax departments to see if there will be any taxes due. And your mortgage company can tell you whether there will be any interest money due from the day of closing to the first day of the month for your new mortgage.

What’s The Break-Even Period

The figure you need to look at when considering whether to do a no-cost mortgage refinance is the break-even period. Compare the date you would break even on the closing costs with the no-cost mortgage refinance versus the date you would break even if you would pay for the costs up front with a lower interest rate.

If you don’t pay the closing costs up front, these costs are traditionally higher when they are built into a no-cost mortgage refinance—and usually the break-even point difference is a matter of several monthly payments! Paying costs up front are usually the best financial deal for the borrower. But a no-cost mortgage can be beneficial for the borrower who doesn’t have the up-front cash for the loan.

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