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Does No Closing Costs Mortgage Refinancing Exist?
By EchoBay Loans Staff Writer

Many borrowers are enticed with promises of no closing costs mortgage refinancing. Closing costs can sometimes mean the difference in being able to afford to refinance your home and not. But does this type of loan truly exist? Generally speaking, no. However, thanks to some creative financing, lenders are able to advertise loans with no closing costs. Remember the old adage "If it sounds too good to be true, it probably is." No closing costs mortgage refinancing falls perfectly in line with this adage.

There are ways that the lender can advertise this and still be truthful in their advertising. We will look at three of the most common reasons ways to offer no closing costs mortgage refinancing.

Closing costs will be rolled into the loan
This perhaps is one of the most popular ways to be able to advertise no closing costs. In this scenario, there are closing costs but they are not paid upfront. Instead, it is added to the loan amount and you will pay it over the term of your loan. If you have a thirty-year mortgage, you could end up paying much more than your original closing costs would have been if you had paid it out of pocket in the beginning.

For example, if you finance $100,000 for thirty years at 6.9%, you will have paid back more than $237,000 by the end of the term. Now consider you rolled $3,500 in closing costs into the loan as well? Your total repayment is now more than $245,000. That's quite a cost for a supposedly no closing costs loan. For some borrowers, however, this is a great scenario since coming up with closing costs out of pocket can sometimes break the deal.

You will almost always have some type of fee to pay upfront
There are many fees that can be included during mortgage refinancing from attorney's fees to appraisal fees to application fees. It is rare that you will not have to pay any of these fees. Many lenders require an application fee or credit report fee just to process your application and pull your credit.

With no closing costs mortgage refinancing, the lender may be referring to certain fees such as origination fees or points but it does not necessarily mean no fees at all. Check with your lender to see which fees are being considered as closing costs. You can also check your good faith estimate for any hidden fees.

The lender may raise the interest rate to cover the fee
As we soon all come to learn, nothing is free! When a lender advertises no closing costs mortgage refinancing, you can be assured the closing costs are being covered in one or another. While some of these fees are purely "extra" income for the lender such as application fees and documentation fees, other fees actually have to be paid to a third party. This would be the case with appraisal fees, attorney fees and title fees. You can bet your lender is not going to pay these fees out of pocket with nothing in return.

If there are truly no closing costs involved in the loan, you may have to look no further than your interest rate to figure out why. Some lenders agree to pay all closing costs for the borrowers and then the interest rate is increased to recoup the fees and more. If the lender increases the rate of a $100,000 loan from 6.5% to 6.8%, the lender earns nearly $7,000 more in interest over the life of the loan.

For some, not paying closing costs upfront is the only way they are able to afford to refinance their mortgage. Many people don't have the money in savings to pay these fees or they have it and are hesitant to pull it out because of its earnings potential. Regardless of your reason for looking at this type of loan, don't be fooled into thinking a lender is closing your loan with no costs associated with it. The closing costs are there, it just may take a little digging to find them!

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