No Closing Cost Refinancing, Is It Right For You

In most refinances situtations you can elect to have the refinancing lender pay for all of the Non-Recurring Closing Costs.
This is often referred to as a No Points No Fees (NPNF) Refinance, or no closing cost refinance.

In order to get a No Closing Cost Refinance you will need to accept a slightly higher rate than a normal No Points mortgage. Usually about .250% to .500% higher.
Non-Recurring Closing Costs include the following: Appraisal Fee, Credit Report, Lenders Fees, Broker Fees, Title Insurance, Escrow Fees and Recording Fees.
 

Is a No Cost Loan Right for You?

If you are planning to own the property less than five years, or if you are short on cash to close on a purchase, then a no cost loan could be right for you.  It is easy to calculate your break-even point by simply looking at the difference in your payment for a no cost loan vs. a loan with costs and then dividing that difference into the amount of non-recurring closing costs that you would have to pay at closing.  The result of this calculation will tell you how many months it would take to re-coup the expense of the closing costs so you can then compare that time frame to the length of time you anticipate living in the property.

No Cost Loan Comparisons

Let’s look a scenario outlined above comparing a no cost loan with a zero point loan.  You are considering two options offered on a $300,000 loan. Option A is a no cost loan with a rate of 6.25% and a payment of $1,847 compared to option B, a zero point loan with base non-recurring closing costs of $2,800 and a rate of 6.00% and a monthly payment of $1,799. The difference in payment would be $49 per month and if you divide this difference into the base closing costs of $2,800, the months to required to break-even (BE) or re-coup the costs is 57.73 months. Divide the number of months by 12 to annualize the equation and it would take 4.81 years to re-coup the costs of the zero point loan vs. the no cost loan. Taking the no cost loan here seems to make the most sense.

Now let’s compare the no cost loan to a loan with base closing costs as well as points. Option A again has a 6.25% rate and is at no cost. Option C has a rate of 5.75% at 1 point plus base closing costs of $2,800. The payment under option C would be $1,751 and the total non-recurring closing costs (NRCCs) with the point would be $5,800. The payment under option A is $1,847 with the non-recurring closing costs (NRCCs) being paid by the lender (or already included in the rate). The difference in payment would be $96 per month and divided into the $5,800 in closing costs would equal 60.15 months, which divided by 12 to annualize, would then take 5.01 years to break-even.  Given the time value of money and the fact that a homeowner will likely refinance

Debt Counsellors will help people with debt problems who need to refinance