No Cost Mortgages, What Are They?
No closing cost refinance loans are one of the best ways for you to save money when you refinance your home loan. Why pay thousands of dollars in closing costs if you don’t have to? With a no cost / no points loan or a no closing cost mortgage, the broker pays all closing costs!
You keep the $2000 – $3000 you would usually pay in closing costs as they are paid by the broker and are NOT rolled into the loan. More importantly, because there are no costs paid in your refinance of your home loan, you will continue to refinance your rate lower and lower as the market moves down with no costs! That’s right, every time rates go lower, you can lower your rate with no costs, even if rates only go down .25%!
Is a No Cost Loan Is Right For Me?
The key to no cost loans is the “break even point”. When you refinance with no costs your rate may be about .25% higher and this means that you will have a slightly higher payment, but this works to your advantage, let us show you how:
There are two components to mortgage closing costs:
1) The 3rd party closing costs (title insurance, escrow, appraisal, etc.)
2) Points you pay to buy down your rate.
No Closing Cost Refinance Analysis
As you can see from this example, although the first loan, a No Cost Loan, has a higher monthly payment, it has no closing costs associated with it. This means that you start saving money right away without paying any points closing costs or refinancing fees.
If you choose the second loan and pay closing costs, it will cost you $2750 in closing costs to save only $48 per month. To recoup the $2750 in closing costs by saving $48 per month would take you 4.75 years, which means the break even point at which it is advantageous to pay closing costs is 4.75 years. If you are not in the loan for at least 4.75 years you will save money by being in a No Cost Loan. If you expect to be in the loan for longer than 4.75 years, it is advantageous to pay closing costs or possibly even points. Our clients typically average 2 to 4 years in their home loans because they 1) Move 2) Take Out Cash 3) Refinance into a lower rate. The best part is that once you are in a No Cost Refinance Loan, if rates go down, you can refinance again and still pay NO CLOSING COSTS!
If you choose the third mortgage loan and pay closing costs and one point, it will cost you $5750 in closing costs to save only $95 per month. To recoup the $5750 in closing costs by saving $95 per month would take you 5.08 years, with means the break even point at which it is advantageous to pay closing costs is 5.08 years. If you are not in the loan for a minimum of 5.08 years you will save money by taking a No Cost Loan.
Qualification Test: How long have you been in your last two home loans or refinance loans? If you are like most people you have not made it to the 4th year in your last two home loans and that means the best loan for you would have been a no closing cost mortgage, paying no points and no closing costs.
The most important reason not to give the bank any of your money is flexibility. If we put you in a No Cost Loan / No Points Loan and rates drop, we will refinance you into a lower rate with no costs! As the market moves downward there is no limit to the amount of times we can do this. When the market moves up, you do nothing as you are fully protected. If you pay mortgage fees or mortgage closing costs when you refinance, you must wait for much larger rates moves downward before refinancing becomes advantageous.
How Do We Pay For The Closing Costs?
Our brokers receive rebates from banks on the loans that they sell. This enables them to pay all mortgage refinancing closing costs and themselves without having to charge you! This means that you save the typical fees you would be paying for closing costs when you choose a no closing cost refinance. They are not rolled into the loan, our brokers pay them! Deferring the costs to the rate is one of the least used and most misunderstood tools that can be used to your advantage in the form of a no costs loan. In most scenarios, a no cost loan makes the most sense.
No closing cost loans, no cost loans, and no closing cost refinance options give you one more option when you are looking to refinance your current mortgage loan or home loan. Not only do no closing cost refinancing options enable you to save money today, they can save you money in the future if rates go down. This means that they make sense now and in the future when you are refinancing your home loan.
Wondering what your no cost loan rate and payments will be?
Get a quick rate quote now and find out how we can get you the lowest no closing cost rate quote on your no points loan, no cost loan, no points refinance, or no cost refi today! We are no cost loans, no points loans, and no cost refinancing specialists!