No cost Refinance, when are they a good deal for consumers

By Michael Mapes, The Responsible Mortgage Lender  

Lets all give credit where credit is due.  Countrywide and Bank of America have found a way to repackage an old idea and call it there own.  Least not forget that Bank of America now owns a significant portion of Countrywide Home Loans.  However, they should be given credit for an excellent marketing strategy.

How does a no cost refinance work.

A No Cost refinance works very simply.  Mortgages today are unlike mortgages many decades ago where you had to wait for the bank to have the money to loan people.  Today mortgages are backed by bonds called Mortgage Backed Securities.  Bonds carry prices on them both negative (which is when borrowers pay points) and positives  (when a borrower pays no points).

When a mortgage bond carries a significant premium (determined daily) then the lender can either keep this premium as profit or use it to pay the borrowers closing cost.  I have never met a loan officer yet who at sometime has not used the premium to pay the borrowers closing costs.  It is good business to do so and it also builds good will between the borrower and the lender.

When is a No Cost Refinance a Good Deal.

Refinancing a mortgage can cost a lot of money.  Typically the cost is rolled into the new loan.  However if you are able to arrange a no cost refinance and it is truly lender paid and you are reducing your interest rate by at least ½% then a no cost refinance would work for you.  You save money on your monthly housing costs and your equity in your home is protected.  However, should you be raising your rate and paying off bills trying to use a no cost refinance option then a no cost refinance might not be in your best interest long term.  The reason for this is that the higher rate you obtained to do a no cost refinance could be actually adding more to your household outgo then a normal cash out refinance can provide.  Normally a No Cost refinance is 1% to 11/2% higher than a regular refinance at normal market rates.

What ever your situation be advised that every lender can offer a no cost refinance.  However if is a good idea for you depends on your situation, a responsible lender will help guide you along so that you can make the right borrowing decision for you.

Michael Mapes can be reached at 757.599.1810 ext 225 or on the web at http://www.theresponsiblemortgagelender.com/ or www.suntrustmortgage.com/mmapes