What Is A “True No Cost” Refinance?
Homeowners have been hearing for several years now that “interest rates are at an all-time low…hurry up and refinance.”
Many have already taken advantage of low interest rates by refinancing the mortgage on their existing home, or by buying a new home. But did you know that it might be possible to take advantage of today’s even lower interest rates with a “No Cost Refinance?”
There is no set standard for the actual lowering of your interest rate when it comes to a No Cost Refinance. The conventional wisdom was that it made sense to refinance when the prevailing interest rate was 1% lower than your current mortgage, and you would have also been paying points plus fees to do the refinance loan. When it comes to No Cost Refinances, this is not the case.
Let me explain how a No Cost Refinance really works. Keep in mind that the market does change daily and that there are several requirements to be able to approve and close your loan. Your credit rating, equity in your home, income and assets will all be considered in qualifying you for the refinance (YES, you do have to re-qualify to refinance your own home, even though you may have just purchased it or even refinanced a few months ago).
All lenders require appraisals on properties in today’s world of conservative lending. You will need to pay an upfront deposit for the appraisal cost, which will be reimbursed to you at the closing of your loan. ALL of the other Non Re-Occurring fees associated with the refinancing of your property will be paid by the lender as well. These include fees for processing, underwriting, document preparation, escrow, and all the title fees – any fees that are associated with refinancing of the loan that are Non ReOccurring.
The ONLY closing fees you may be required to pay are those included in your monthly mortgage payment…such as property taxes (impounds will be required), home owners insurance, condo association fees and, of course, daily mortgage interest. Think of it this way – any fee that you are required to pay for your current property, as an annual, biannual, monthly, or daily charge, you will continue to be responsible for.
Here is a simple example of how the No Cost Refinance works. Let’s say you have a property today that is worth $650,000 and you owe approximately $450,000 on it. If you purchased the home a year ago, you probably got a 30 year fixed interest rate of about 4.5%. The Principal and Interest payment on a loan of $450,000 at 4.5% is approximately $2,280 per month.
If you were to take advantage of the lower interest rates available in today’s market, you could do a No Cost Refinance at 4% on a 30 year fixed rate, for free (all Non ReOccurring fees paid by lender) and the Principal and Interest payment would drop to $2,149. This would be a savings of over $130 per month. That is a savings of over $47,000 on the life of a 30 year loan. This illustration is just one general example of how we can help you at Mann Mortgage.
The nice thing about a “True No Cost Refinance” is that your savings is Immediate. Once you drop your interest rate, close the new loan, and start making the new reduced monthly mortgage payments, your savings start from day one. There is no recapture time if all of your Non Re-Occurring fees are paid for you, by the lender.
At Mann Mortgage we strive to serve our community and provide the best service, products, and knowledge in the lending marketplace. If you have any questions or would like to contact me directly, I can be reached at (808) 397-0800.
Darron R. Carson
Senior Loan Officer Mann Mortgage, LLC NMLS# 378886