No cost refinance?

[texmati]

What should I be weary of? What questions should I ask? We got this offer from our current company and it sounds a bit too good to be true-- especially considering we are hoping to go down to one income soon, but we aren't sure we want to stay in this home 4 ever.

[Ola_]

Will the refinancing costs be automatically rolled into your loan amount? I recall hearing something about that, in which case it wouldn't be free at all and I'd probably be looking for other options.

[sunnysandiegan]

Call up and obtain a free "good faith estimate" for the re-fi. Ask a lot of questions before agreeing to do it.

[sunflower.mama]

There is nothing inherantly wrong with a no cost refi. A lot of savvy people I know get them. The "catch", if you want to look at it that way, is that the interest rate you pay is slightly higher - usually about an eighth to a quarter of a point - and that spread is what the mortgage company uses to pay the cost of the refi. The reason to do a no cost refi is that you haven't fronted any cash at all to capture a lower interest rate, and therefore if rates go down further, you can do another no cost refi without worrying about having wasted transaction costs. You spread the cost of the refi over the life of the loan instead of paying thousands up front as you do with a traditional refi. I think that the fact that you may not be in the home forever is incentive to do a no cost refi, so you won't have "invested" in paying closing costs.

[sunflower.mama]

Originally Posted by Ola_

Will the refinancing costs be automatically rolled into your loan amount? I recall hearing something about that, in which case it wouldn't be free at all and I'd probably be looking for other options.

Whether or not closing costs are rolled into the new loan is always at the discretion of the borrower, in my experience.

[texmati]

Originally Posted by Ola_

Will the refinancing costs be automatically rolled into your loan amount? I recall hearing something about that, in which case it wouldn't be free at all and I'd probably be looking for other options.

no, the principle would remain the same... I think, from comparing with other banks, pp is correct-- the rate is higher by almost a half point than the average.

In the end, I'm worried that we will be moving in less than 5-6 years. We would be able to go from a 15 year mortgage to a 30 year one; cutting our payment in more than half while reducing the interest rate. Our plan is to continue paying at the current rate, but this give us more cushion if things get tight if I SAH after this next baby.

[sunnysandiegan]

We just did a refi this summer and I can tell you with our lender, we had choices for the APR. The higher APR had lower closing costs, but the refi still had fees associated with it. I called for a good faith estimate and had them give me all the details for three different rates. Only the "points" were different amongst the options. The appraisal fee and 2-3 other fees were the same no matter which APR we chose. There was no truly free refi option.....

You are basically choosing WHEN and HOW you pay the bank for the new loan. Higher APR means you pay more in interest over the life of the loan. If you are not planning to stay that long, then that part is negated by other factors. In the situation you described above, going from a 15 yr to a 30 yr, you will be paying more interest and won't build as much equity in the same amount of time (let's say 5 years). You can use a mortgage calculator (free online -- google it) to see the differences.