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- No Cost Refinancing
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"No Cost" Refinancing
refers to a type of financing whereby the borrower is not required to
pay any of the normal closing costs associated with obtaining a new
mortgage. There are always fees associated with obtaining a mortgage,
Loan Origination, Appraisal, Credit Report, Attorney, Title fees, etc.
These costs must be paid by someone. In the case of a "No Cost"
refinance the lender will agree to pay these fees in exchange for
charging the borrower a higher than normal rate of interest for the life
of the loan. Depending upon the size of the new loan the additional rate
of interest may range from .50% to 1.0% or more.
The "No Cost" refinance may make sense if you only plan on keeping
the mortgage for 1-2 years. Typically it makes more sense to pay
the closing costs (or roll the costs back into the loan), and obtain the lower interest rate.
You may want to obtain a Good Faith Estimate for both options then
evaluate the total interest that will be paid over the time you
plan on keeping the mortgage.
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