| Those considering the refinance of their home | | | | rate. The resulting monthly principle and interest |
| mortgage have most likely encountered television, | | | | payment is $1,621.50 and $333,738.29 in accrued |
| radio, newspaper, and internet advertisements for | | | | interest over the life of the loan. The supposed |
| "no closing cost" mortgages. Now, on the surface, | | | | no cost refinance option will actually end up |
| it would appear that choosing a refinance lender | | | | costing the borrower an extra $102.47 per month |
| offering to pay your closing costs is a no-brainer | | | | in payment and an additional $32, 888.80 in |
| decision. But just for the fun of it, lets look | | | | additional interest over the term of the mortgage. |
| beyond the sales hype and get into the nuts and | | | | Now this doesn't sound like a no-cost situation to |
| bolts of a no closing cost loan. You will learn that | | | | me. |
| what may cost you nothing upfront, may cost | | | | Relating to the previous example, the question |
| you dearly in the long run. Always keep in mind, | | | | boils down to whether the borrower wants to |
| particularly when dealing with mortgage broker | | | | pay the $4,000 closing costs or not. The |
| ads, if it sounds too good to be true, it most likely | | | | break-even point if paying closing costs and |
| is. | | | | accepting the lower interest rate is 39 months |
| The truth of the matter is that a borrower | | | | ($4,000 closing costs divided by $102.47 per |
| actually does pay closing costs when applying for | | | | month savings). If the homeowner plans to stay |
| a no closing cost refinance loan. The payment is | | | | with the new mortgage for more 39 months, |
| made in the form of a higher interest rate, as | | | | significant financial savings will result. On the other |
| opposed to paying closing costs upfront and | | | | hand, if the borrower plans on moving, selling or |
| accepting a lower rate. Lets use a $250,000, | | | | refinancing before 39 months, the no-closing cost |
| 30-Year fixed mortgage as an example. Assume | | | | option may be the best way to go. |
| the actual closing costs for this loan is $4,000 and | | | | As you can see, that "No Refinance Closing |
| the borrower is qualified for a 6.125% par rate | | | | Costs" ad may actually cost a homeowner up to |
| when paying upfront for closing costs. The | | | | tens of thousands of dollars over the term of a |
| principle and interest payment for this option is | | | | home loan. These advertisements border on |
| $1,519.03 per month with accrued interest of | | | | deception and those refinancing would do well to |
| $296,849.49 over the term of the loan. | | | | be very cautious when responding to such |
| The "no closing cost" option for the same loan | | | | lenders, unless they are completely upfront about |
| scenario qualifies the homeowner for a 6.75% par | | | | their no closing cost refinance programs. |