To most people the phrase "no cost" is really an attention grabber, especially when this phrase is tied-in to loans, like the famous "no cost refinance loan", because it seems perfect! But just because "no cost" is included in the name, people shouldn't immediately think that there will truly be no cost attached to it. People have to be very careful, and truly understand what a no cost refinance truly means.
While there are many names for "no cost refinancing", all of these mean just one thing. And that is, the closing costs associated with the loan are going to be very, very small, costs like courier fees, recording fees, flood certification fees, title insurance fees, and so on. Under normal circumstances, these fees would amount to a lot of money that needs to be paid, an amount that perhaps not a lot of people will be able, or be comfortable, in paying, and this is where "no cost" comes into play.
In a no cost refinance setup, the lender will take care of a lot of these costs, without increasing the loan balance of the borrower. This should be a perfect deal to most, if not all people, yes? However, because the lender still has to earn from the setup, this usually translates in the lender giving high interest rates, which over the course of the loan, will usually be costly enough to pay for all the closing costs the lender offered, plus profit!
So why should anyone, you might be asking, get a no closing cost refinance? Well, this kind of refinance is suited for people who would like to pay off the loan in a short amount of time, and not for people who plan to have the loan for a longer period, because people who will take longer to pay the loan may end up losing more money. To find out if you're suited for a no cost refinance, decide how long it will take you to pay off the loan, and if it's before the break-even point, then it's good.
With all these, it can then be deduced that a no cost refinance is both good and bad. It's just important to make sure that if a person is interested in a no cost refinance, that it is good for him or her. And to make sure of that, it is important to know under what conditions will a no cost refinance be beneficial, and make sure these conditions are met before getting one.
While there are many names for "no cost refinancing", all of these mean just one thing. And that is, the closing costs associated with the loan are going to be very, very small, costs like courier fees, recording fees, flood certification fees, title insurance fees, and so on. Under normal circumstances, these fees would amount to a lot of money that needs to be paid, an amount that perhaps not a lot of people will be able, or be comfortable, in paying, and this is where "no cost" comes into play.
In a no cost refinance setup, the lender will take care of a lot of these costs, without increasing the loan balance of the borrower. This should be a perfect deal to most, if not all people, yes? However, because the lender still has to earn from the setup, this usually translates in the lender giving high interest rates, which over the course of the loan, will usually be costly enough to pay for all the closing costs the lender offered, plus profit!
So why should anyone, you might be asking, get a no closing cost refinance? Well, this kind of refinance is suited for people who would like to pay off the loan in a short amount of time, and not for people who plan to have the loan for a longer period, because people who will take longer to pay the loan may end up losing more money. To find out if you're suited for a no cost refinance, decide how long it will take you to pay off the loan, and if it's before the break-even point, then it's good.
With all these, it can then be deduced that a no cost refinance is both good and bad. It's just important to make sure that if a person is interested in a no cost refinance, that it is good for him or her. And to make sure of that, it is important to know under what conditions will a no cost refinance be beneficial, and make sure these conditions are met before getting one.
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Here are some resources for more information: Second Mortgage and Real Estate San Diego.
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