Have high closing costs kept you from considering home refinance seriously in the past? If so, you may have a renewed interest in the process of refinancing with the introduction of what is often called the no closing cost refinance. This is a great option for a lot of people who do not want to pay a big chuck of change at the closing of the loan. While it makes the process of refinancing more affordable up front, you should be aware that nothing is what it looks. When you are suddenly told that there are no closing costs associated with refinancing where do you think these fees have gone? They are still there; they are just paid for a bit differently.
Understanding the No Closing Cost Home Refinance
You may have found yourself practically running to your lender when you heard that you could get a home refinance loan with no closing costs. But, you should slow down a bit and understand how this is done. The term "no closing costs" is nothing more than a gimmick to help you get in the doors and realize that refinancing can be affordable up front. No need to think that you got the best deal of the year, because you are still paying those closing costs, just not up front.
When you go through the process of home refinance you basically have three options today. You can choose to bring a check with you to the closing and pay for the closing costs up front. This can be thousands of dollars and when you are looking to save money the last thing you want to do is write a check for a few thousand dollars.
One of the "no closing costs" options is to simply have your closing costs rolled into the principal balance of your home. So, if you are refinancing $ 100,000 and your closing costs would have been $ 8,000 you would now be financing $ 108,000. To many people this is worth it because they do not have to pay these fees up front but do not think that you are getting away with paying nothing because you are also paying interest on that extra $ 8,000!
Another option under the "no closing costs" home refinance offers that are out there right now is to simply accept a loan that has a higher interest rate. Through this higher interest rate, perhaps half to one point higher, the lender fees will be paid and you will not have to pay anything at the actual closing. Again, it looks like you are not paying anything but the fact is that you are actually paying a higher interest rate to cover these fees so the fees are in there, they are just hidden.
These can all be great options depending on your financial situations and your expectations of home refinance. The important thing is that you do the math and make sure that you are not paying anymore than you absolutely have to for the refinance process. You are going to pay a bit for these "no closing cost" solutions but sometimes the convenience and affordability up front is worth the slightly higher costs associated with closing the loan. Simply take some time to do the math to make sure that you are getting the best deal possible.