Getting a No Closing Cost Mortgage Refinance

Modifying a Home Loan For No Money Down Can Mean a Lower Payment

Oct 2, 2009

Some people refinance homes through companies that offer no cost mortgage refinancing, but those closing costs still have to be paid. Find out where the money comes from.

Most homeowners have seen the TV and Internet advertisements saying they can refinance their home mortgage to a new, lower rate with no money down and/or no closing costs, but are those offers too good to be true? That depends on how the homeowners interprets the statement that there will be "no closing costs."

Generally, these companies don't actually mean there are no costs involved, but only that the homeowner can refinance with no money down. The costs are usually included in the amount that's refinanced, so the idea that there aren't any fees associated with closing the loan is a myth. However, that doesn't mean these kinds of financial options aren't good ones when they're offered at the right interest rate and with the right terms.

Costs and Terms Involved in a No Closing Cost Home Mortgage Refinance

When a homeowner goes in to see about a no closing cost refinance option for his mortgage, it's important that he realize these companies aren't interested in giving anything away for free. They will always be working to make money for what they do, and that means they have to get some kind of closing costs from somewhere.

Because that's the case, there are always costs and specific terms that come along with a refinance. These costs can be set up in ways that customers don't really catch when they look over what their new loan will offer them. These companies often:

Then they advertise their mortgage refinance with no closing costs. Because the homeowner can walk in and get his loan without paying any money out of pocket for it to close, he assumes he's gotten a good deal. If the terms are acceptable to him and he's getting a much better interest rate than he had on his original loan, he's probably getting a good deal despite the costs. It's important to look carefully at the interest rate and terms, though, rather than being blinded by the "no money down" option.

Paying Refinancing Closing Costs Over the Life of the Loan

When a company offers a consumer a no closing cost mortgage refinance, the company simply moves the costs associated with closing out over the life of the loan instead of asking the homeowner to pay them right up front. For people who don't have a lot of money in the bank and need to refinance their mortgage, this can be a great deal at the time. It might save them from bankruptcy or foreclosure, but it's important they realize they'll be paying more in the long run.

These kinds of home mortgage refinance options are also good for people who want to cash out equity in their home and use it for something else like remodeling, buying something, or taking a vacation. In a case where people cash out equity, they can be offered the option to pay the costs over the length of the loan or simply have the closing costs taken out of the cash back they're getting for their equity.

For most people, paying the closing costs at the time of their mortgage refinance, if possible, is a better deal because they won't be adding an additional amount to what they owe. When a homeowner rolls the closing costs into the new loan, he pays interest on those costs for the life of that loan, which can be expensive in the long run.

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