No Cost Mortgage Refinance
A no cost mortgage refinance has gained popularity over the recent times because of swelling of property costs which proportionately means an increase in loan costs!
What is a No Cost Mortgage Refinance?
A no cost refinance is basically a remortgage where the consumer is looking for a new mortgage deal that has no initial costs involved that most normal mortgages might have – These costs include but are not limited to appraisal fee’s, escrow costs, lenders “trash fee’s” (meaning things such as document preparation, admin fee’s, processing fee’s – Basically made-up fee’s that bump up the lenders earnings), broker fee’s, title fee’s etc
This type of a no cost mortgage refinance sounds good, however, the downside is that you will be paying a higher rate of interest than you would be if you were looking for the best deal on a normal mortgage where you are required to pay points and closing costs.
This shouldn’t put you off depending on your circumstance because it could take you around 4-6 years to break even with the interest savings you’ll make with a normal mortgage :
Who Are No Cost Mortgage Refinances For?
While anybody can benefit from these kinds of remortgages, the two main types of people or buyers who benefit are :-
Those who are not planning on keeping their property for more than around 5 more years – If you’re planning on selling your property on in the near future for a profit, then you’ll most likely save by utilising a no cost mortgage refinance! This is due to the fact that you will have sold your property well before you start start seeing a saving with a standard mortgage.
The second type of buyers are those that don’t quite have the extra available cash to cover the initial costs of a mortgage! These costs can often add a lot more money on top than the consumer bargained or prepared for, therefore a no costs mortgage refinance is definitely the way to go if you want to close the deal without having the funds for initial fee’s! This type of buyer can always refinance in another 5 years anyway before the mortgage begins to show bad value – which is a normal thing to do amongst property owners.
Is it Worth it?
As discussed above, most of the time this type of refinancing is worth it because most property owners will be remortgaging on average every 5 years (depending on rates).
However, if for any reason you want to keep your mortgage for a longer period of time, then a no cost mortgage refinance becomes pretty bad value after around the 5 year mark. It is definitely worth comparing and calculating how long it will take you to break even and paying extra with each mortgages respective interest rates. With this in mind, you can make the correct mortgage choice for your situation.
Here is an exampe of 2 mortgages :
No Cost Mortgage Refinance
Mortgage : 300k
Interest : 6.25%
Initial Costs : 0
Monthly Payment : Approx 1,847
Standard Mortgage Refinance
Mortgage : 300k
Interest : 5.75%
Initial Costs : Approx 5.5-6k
Monthly Payment : 1,750 (saving 97 per month)
Approximate time needed to break even between the 2 mortgages : roughly 5 years
Anything beyond this time makes the average mortgage better value than a no cost mortgage refinance.
More Interesting Facts about This Kind of Refinance
These type of no cost mortgages came about in the early 1990’s and were being commonly offered then.
They have recently been considered to be somewhat of a rarity and difficult to find however, this is untrue if you do your research you can still find plenty of lenders who offer a no cost refinance.
They became popular due to the inflated property prices which also pushed up the cost and amount of loans.
A good practice with any mortgage and especially the no cost mortgage refinance brokers, is to make sure you read every bit of fine print to make sure that this is the correct mortgage for you and your situation. Lenders have recently caught a bad reputation due mainly to poor lending practices by the sub-prime area of mortgage lending.
This makes buyers extremely wary of lenders but this is a positive thing when looking for an investment as important as a mortgage! As long as you have been thorough with your research, you will be fine in the no cost mortgage refinance sector.
