There is a lot of confusion about the "no cost" refinance. What people need to realize is that there are always costs on a loan such as appraisal, underwriting, processing, title, escrow, and etc,. The difference is that with a "no cost" loan the rate is increased by a certain amount of basis points, depending on the loan amount, to create a credit from the lender to the borrower to cover these costs. This way the borrower does not pay the lender costs, but will pay for them in the rate.
This is great for a borrower that plans to keep the loan for less than 6-7 years. If the borrowwer plans to keep the loan longer than this period, they could be costing themselves over the long term because they will pay more interest from the higher rate.
This is careful to consider when trying to get the lender to pay the closing costs. If you are planning on keeping the loan for more than the above mentioned term, the better option is to lock the lower rate, pay the closing costs, but roll them in to the loan. This way you do not pay them out of pocket and this works out to more savings over the long term.
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