Many people choose to refinance their mortgages at some point in their lives. It could be just to get a lower interest rate or it may be because they need extra money to pay off some bills, buy a new car, or do some home improvements or one of many other reasons. Whatever the reason might be, it could be good to deal with a company that has a no closing cost refinance loan program.
When refinancing a mortgage, there are certain costs that go along with the loan that need to be paid. When a company says they do no closing cost loans, that simply means they will foot the bill for these costs. Why would a company do that you ask? You can be assured it is not just to provide no closing cost mortgage refinance. No, simply put, to gain more customers and make money off of the interest on the loan.
When applying for any mortgage, even a refinance, the lender will have to order an appraisal on the house. The loan to value,or LTV, can not be figured out without the appraisal, as that is what the amount of the loan that can be given depends on. A lot depends on the appraised value of the home as the LTV varies for different companies. Some companies may only do 70 percent LTV loans, while others may go all the way up to 100 percent and on rare occasions higher. What this simply means is that if a particular lender will go up to 80 percent LTV on a home, they will lend the customer up to 80 percent of the appraised value. Therefore, on a house that has been appraised at $200,000, they will loan up to $160,000. The amount the customer can get then depends on the amount of the mortgage they are refinancing minus any other mortgages. So in this scenario, if the customer owes $140,000 on their mortgage, they can do the refinance and get up to $20,000 more if they wish. The customer is normally responsible to pay the cost of the appraisal, but with a no closing cost refinance the lender will pay for the appraisal.
Another cost associated with refinancing is ordering a title and title insurance. What a title does is supply information to the lender about any liens that are outstanding on the property. When doing a refinance mortgage no closing costs, it is usually mandatory that all liens be paid off and included in the loan. An exception to this could be when closing on a refinance of a second mortgage, the first mortgage will be allowed to stay in place. The title insurance protects the lender in the case of a lien not showing up on the title which should have been reported. This is another cost normally passed on to the customer, but with no closing cost refinance loans, the lender will also pay this fee as well.
There are also credit report fees and recording fees. Yes, companies do charge people for simply running their credit, as they have to pay the credit reporting agencies for the report. They also have to pay to have the mortgage recorded at the county clerk’s office. Again, on a refinance no closing costs, however, these fees will be paid by the lender.
These types of loans can save you a lot of money, but the thing to note about these loans is that the interest rate may be a little higher than if you pay these fees yourself. But refinance with no closing cost is both possible and practical. It is a personal decision but one that has to be considered, so be sure that the rate of the no closing cost refinance loan is not so much higher than the rate you would get by paying these fees yourself that in turn you end up paying way more in the long run.