How to No Cost Refinance Before it’s Too Late
I’ve focused mainly on personal finance issues the past couple months, but I wanted to shift gears today to real estate. Real estate has gotten a bad rap in the recent years due to the housing bubble, but home prices and interest rates are at rock bottom right now. In my opinion, now is one of the best times to buy if you have the rest of your finances in order.
In college, I saved as much as I could in order to invest in my first property, a 2 bed/2 bath condo in San Diego. Real estate is one of the only investments in which you can put down as little as 20-35% as principal and still get back 100% of the investment gain. I always recommend real estate to investors who have already maxed out their 401k and IRA’s. It’s also a great alternative for anyone looking to diversify away from stocks and bonds.Most property owners know the basics about refinancing and how it can easily lower their monthly payments. In fact, there is an abundance of literature online that will help you decide if refinancing is even worth it: how much you’ll save, how long it will take to break even, etc. But it should never be necessary to pay fees to a broker to refinance your loan. Mortgage companies should be competing for your business, not the other way around. A no cost refi achieves this and more.
How it Works
Banks and mortgage brokers see your loan as an opportunity for free money. They are willing to sacrifice some of the up front costs that may total just a few thousand in order to receive the interest over the life of your new loan. Over a 10-20 year time period, the amount of interest paid will significantly outweigh any closing costs.
Although you will never get the lowest rate possible with a no cost refi, there is truly no cost. People often pay thousands of dollars to refinance, only to see the rates drop within the next couple of months. A no cost refi offers protection against further rate drops, because you can just refinance again, at no cost! There is often a 90 day waiting period to no cost refi with the same company, but there are many companies to choose from.
Truly No Cost
You want to make sure you are actually pursuing a no cost refinance and not a no cash refinance. No cash essentially means they will add the closing costs to your principal, while no cost literally means no cost. Here is a list of some online companies with the lowest no cost refi rates around:
- Quicken (this is the company I used and I had a great experience with them!)
- Box Home Loans
This was my first refinance so I decided to go with a well known company in Quicken Loans. I refinanced from a 30 year fixed loan at 5.25% to a 7/1 ARM at 3.75%, saving myself over $200 a month. They were extremely easy to deal with and the whole process took just under a month. However, they did try to tie my escrow prepayment into my new loan. This is something you don’t want to do because it will add to your loan amount. All the numbers can be a little confusing, but make sure that the lender fees(including appraisal, credit check, etc) and government recording fees are less than the lender’s credit and you should be just fine.
Have you tried a regular refinance or no cost refinance? Are there any drawbacks to a no cost refi that I’m missing?
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