When looking to refinance a borrower has multiple rate and cost options to choose from. Borrowers can choose to pay upfront discount points to get a lower interest rate resulting in high closing costs, go with a 0 point loan that has a bit higher rate with limited lender fees and the consumer primarily paying third party costs such as appraisal, title insurance, county recording, etc. and finally a no cost loan.
A no cost refinance is a refinance in which the lender provides a credit in exchange for a slightly higher rate to cover all lender and third party closing costs, including appraisal fees, title fees, county record fees, etc. The lender provides the credit in exchange for the borrower financing at a higher interest than they could get if they paid the costs themselves. When determining whether a no cost refinance is right for you there are a few factors to consider.
- How long do you plan on being in your home?
- How much will the rate increase if I opt for the no cost option?
- Are there any personal financial changes on the horizon such as kids going to college, retirement, job changes, etc.?
How much your interest rate will increase depends on a variety of factors. In general, the rate increase will be the lowest on a primary residence combined with a borrower with great credit. Additionally, higher loan balances limit the rate increase given the lender credit is paid based on a percentage of the loan amount being borrowed. Fixed rate mortgages are also more likely to have a good no cost option as Adjustable Rate Mortgages usually don’t pay out significant lender credits.
A true no cost mortgage not only has no lender fees, but also provides lender credit covering all third party closing costs. Many banks will claim the offer “no fee” loans; however, third party costs often still have to be paid by the borrower. Other times mortgage companies simply add the closing costs to the loan balance.
At Sammamish Mortgage we offer true no cost loans with lender credit sufficient to cover all lender and third-party fees. Through our Interest Rate Quote tool our clients can easily compare options side by side and determine which option makes the most sense for their situation. If you are unsure which option is right for you, we have experienced loan officers who can guide you through the pros and cons of each scenario and help you pick the one likely to provide you with the highest overall savings.