Finance Roll

When you are in the market to refinance your home mortgage, you have probably been drawn by the lenders who claim they have no-cost refinancing. While going with a no cost mortgage refinance might sound interesting, many people are weary of this offer. Because, honestly, when have you ever came across an offer that was truly "no-cost?" However, is there some truth to the no-cost refinancing offers? The answer really depends on who you get your refinanced mortgage loan from.

There are hundreds of loan lenders that claim they have zero-cost home refinancing, however, the truth is many of these lenders are simply hiding various fees. When you are looking for a lender that actually performs no-cost refinancing, you will want to go with one that actually explains why there is no cost to you. In many cases, a lender can cover the costs of a refinanced loan by raising your interest rates.

How this process works, is the lending company will give you an interest rate that is higher than if you were to choose a lender that made you pay closing costs. Once you have agreed to this type of loan, and increased rates, the lending company receives a commission from this increased interest, and then they pay the closing costs on your behalf.

This type of commission is called a yield spread, and it is becoming very popular among no-cost mortgage lenders. However, before you sign the contract, you must first decide if this option is right for you. While saving potentially thousands of dollars up front in closing costs may sound perfect, you will more than likely pay for that money during the duration of your loan term. Because the lender raised your interest rate, you will paying more interest than normal, thus actually spending the price of the closing costs. Even though you have to pay a higher interest, if you do not have the money to cover the closing costs, this may be an option that is right for you. With this said, you still need to fully understand what your entire loan will cost you, not just what you'll be saving up front.

Of course, choosing to go with a no-cost loan may seem like a great idea, you have to make sure your lender doesn't sneak in extra fees and charges into your loan amount. When you're searching out for no-cost mortgage finance lenders, make sure that they do not roll in the closing costs into your loan amount. This will cause the amount of interest you have to pay to increase, as well as your monthly payments. Yet, it seems that with a no-cost mortgage refinance you will experience higher monthly payments as well.

No cost mortgage refinance, under standard circumstances, will result in an average monthly payment of $150 more per month, than if you were to go with a traditional refinance loan. Just because you are saving in upwards of five thousand dollars upfront, doesn't mean that you are actually saving money. In many cases, these types of loans will cost borrowers tens of thousands of dollars worth of interest over the length of the loan. Always make sure to calculate what the life of the loan will cost you, and not what the initial payments are. By doing this you will be able to actually understand what the loan will cost you.