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You can get your closing costs reduced/paid for by the mortgage broker or lender by accepting an interest rate slightly higher than the interest rate you would get if you were to pay your own closing costs. This is because at a higher interest rate, the mortgage lender or broker makes more commission from the bank and they can use the additional commission to pay your closing costs. The difference in interest rate usually is .25% up to .50% depending on your loan amount and the amount of closing costs.
I would say that would be true if you're only talking about the loan origination fee. If you're saying your friend paid NO closing costs, that usually means it was added to the loan amount.
For example, if you owed $100,000 (nice round number), and your closing costs were going to be $4000. Instead of paying the $4k at closing, you refinance to a loan of $104,000 instead. People consider that a no-cost, no-fee refi, as they don't count the fact that they're paying for it over 30 years (15 years depending on loan).
If you want to pay no costs, you should expect a rate around 5%. But at the end of the day, consumers always pay the closing costs. They either pay them upfront or they pay them over time with the higher interest rate.
If you are keeping your current home for more than 3 years, you should pay the costs and buy the lower rate.. If you are keeping current home less than 3 years, a no cost loan is a great option.
nc - correct, you would just be responsible for pre-paid interest & any reserves required for the escrow account (if applicable), so the lender or broker pays for the lender fees, title fees, escrow fees and recording fees.
Falconhead you bring up a good point - a lot of lenders have different variations of a "no fee" mortgage. Some lenders will say it only covers their costs, such as underwriting, processing, credit report, etc... some will just say it means you are including everything into the new loan amount vs. paying it out of pocket... and some will actually say it covers all parties fees, which is what I think it should mean. In any "no fee" or "no cost" situation it's always good to get an upfront breakdown of the costs so you can see what portion you'd be responsible for, if any at all.
I would say that would be true if you're only talking about the loan origination fee. If you're saying your friend paid NO closing costs, that usually means it was added to the loan amount.
For example, if you owed $100,000 (nice round number), and your closing costs were going to be $4000. Instead of paying the $4k at closing, you refinance to a loan of $104,000 instead. People consider that a no-cost, no-fee refi, as they don't count the fact that they're paying for it over 30 years (15 years depending on loan).
Not correct. I have been doing around half of my refinances (especially 15 & 10 year deals) with $0 closing costs. The costs are built into the rate, not the loan amount.
Nc9 - I refinanced last year to 4.5%. Total fees $965 (including the appraisal).
We went through our existing lender and did a stream line refi.
Good Luck
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