Comments on: Beware the “No-Cost” Mortgage Refinance

By: Economy and Your Finances Carnival June 7 2009 | OneMint

Economy and Your Finances Carnival June 7 2009 | OneMint — Sun, 07 Jun 2009 08:02:55 +0000

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By: Carnival of Financial Planning - Edition #92 | ZachStocks

Carnival of Financial Planning - Edition #92 | ZachStocks — Sat, 06 Jun 2009 15:12:51 +0000

[...] nickel presents Beware the “No-Cost” Mortgage Refinance posted at fivecentnickel.com, saying, “Taking a closer look at no-cost mortgages. They can be great in some cases, but you need to know what you’re getting yourself into.” [...]

By: Danielle

Danielle — Mon, 01 Jun 2009 22:04:11 +0000

For some fun reading about the “TANSTAAFL” principle, look it up on wikipedia!

By: June 1 2009 Carnival of Real Estate is Here!-- Minneapolis Real Estate Blog

June 1 2009 Carnival of Real Estate is Here!-- Minneapolis Real Estate Blog — Mon, 01 Jun 2009 15:55:13 +0000

[...] – There’s a sucker refinanced every minute… nickel presents Beware the “No-Cost” Mortgage Refinance posted at [...]

By: Chris

Chris — Fri, 29 May 2009 16:02:58 +0000

Rosa has the right idea and the original post mentioned this as well. Look at the total cost over the lifetime of the loan. Many loan offers tout saving money by lowering monthly payments but ignore the overall cost.

In business I often have customers wanting to cut costs. In their mind this means a lower price or longer terms which is actually shifting costs, much like the no cost, nocash examples. Removing costs like home inspections, title searchs etc. is what you are trying to do. Home Equity loans though not lines of credit tend to be lower cost options. For a refi if you have already done title searchs and other things there is no reason to pay for them again.

By: Rosa

Rosa — Wed, 27 May 2009 21:51:30 +0000

If you’re planning on paying off the mortgage (instead of using any monthly savings for something else) I think the total lifetime cost is more important than the break-even point.

By: Rob

Rob — Wed, 27 May 2009 21:16:56 +0000

I would think that these days your credit would have to be absolutly perfect to get a no cost re-fi.

I am hearing brokers are swampped right now with re-fi’s lets hope this doesn’t lead to another housing problem

By: Nickel

Nickel — Wed, 27 May 2009 20:31:55 +0000

ckstevenson & Kerri: In the example you give, there’s not much downside. Refinancing resets the clock on your mortgage, but if you’re less than a year in, that’s not a big problem. While this may be a good option, however, you have to ask yourself if this is the best option. If you plan to be in your house for the long haul, then you might be better of paying the closing costs yourself and getting an even lower rate.

What really matters here is the breakeven point. If it will take too long to recover your costs with the lower rate, then the no-cost refinance is a great option. Otherwise, you should really think about biting the bullet and paying the costs yourself.

Of course, the other thing to be sure of is that this is a true no-cost refinance, and not a no-cash refinance (some brokers play it fast and loose with the terminology, so be specific when asking questions).

Bottom line: There’s nothing inherently wrong with a no-cost refinance as long as you understand what it’s all about and are sure that it’s the best option given your circumstances.

By: Kerri

Kerri — Wed, 27 May 2009 20:24:19 +0000

Interested in any arguments for/against ckstevenson’s comment since I’m almost in that exact situation and I’ve considered a “no cost” loan myself…

By: ckstevenson

ckstevenson — Wed, 27 May 2009 14:29:34 +0000

A very basic example:

I have a 30 year fixed with 29 years left at 5%, I get offered a “no cost” refi for let’s say 4.75% as a 30 year fixed.

Why wouldn’t I take it?

By: Jared

Jared — Wed, 27 May 2009 13:58:04 +0000

Tanstaafl is a great principle to always keep in the back of your mind, but in today’s lending market “no-cost” refinancing may be a great option. I say this because in most cases rates today are likely to be much lower than what some one already has. Now, if we are talking about a “normal” market everything you said is spot on.

By: » Beware the “No-Cost” Mortgage Refinance | Mortgage

» Beware the “No-Cost” Mortgage Refinance | Mortgage — Wed, 27 May 2009 13:09:23 +0000

[...] the original post here: » Beware the “No-Cost” Mortgage Refinance Related Posts:Buyer Beware: Mortgage horrors | Crooks and LiarsHome Mortgage Refinance and Tips on [...]

By: DDFD at DivorcedDadFrugalDad

DDFD at DivorcedDadFrugalDad — Wed, 27 May 2009 12:30:08 +0000

Universial truth: There is always a “catch” and a “cost.”

Nice post!