No Cost Financing

"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.