There are certain factors that come into play with a no closing cost refinance. Sometimes, this can mean that you have no additional expenses when you refinance your mortgage, but it can also mean that you pay a higher interest rate. There are two types of programs that lenders have for a no closing cost refinance. These are a yield spread premium and a roll in your cost program.
With the yield spread offer for a no closing cost refinance, the lender will pay all of the closing costs associated with refinancing your mortgage. You can choose to have only the true costs of the transaction included or the costs of the insurance and taxes added to it. If the taxes and insurance are prepaid, you will get a refund for that amount within 30 days of closing.
Although the interest rate you pay with this program of no closing cost refinance, you can use this method to lower your current interest rate. If you can lower the interest rate on your mortgage by 2 points and still walk away with no out of pocket expenses, this is a very good way to lower your mortgage payments and cut years off the term of the mortgage.
Under the roll in the costs program, you can have a no closing cost refinance if you have equity built up in your home. With this option, all the closing costs are included in the total amount you borrow. The advantage of this method is that you still qualify for the current interest rate. If you intend to remain in the home for at least five years before you sell, this is an affordable option in refinancing. The amount of the closing costs only adds a very small amount to the mortgage total and will play a small part in the amount of your monthly payment.
However, you do need to check around with various lenders because there are some who really mean what they say when they advertise no closing cost refinance. A no cost program should be able to lower your interest rate at absolutely no closing cost to you. Closing costs typically include the cost of getting title searches and credit reports. If you deal with your regular lender and have been making your payments regularly, they won't need to request a credit report. Since the title search was already done when you bought the home, this is already on file, so there is no need for another.
If you have equity built up in your home through the increasing value of real estate or through improvements you made, you might walk away from the no cost closing refinance with money in your pocket to spend as you wish. If you have a FRM that is at least 0.5% above the current interest rate, you can benefit from checking out the possibilities of refinancing your home. If you can afford to pay off a portion of the mortgage when you refinance, it will help you cut years off the term.
Richard Cunningham is a successful entrepreneur and publisher of several profitable websites on Homeowner Insurance, Mortgage Refinancing, and Apartments for Rent
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